There have been significant and frequent changes made to the taxation of UK residential real estate over the last few years. It is worth recapping on the status of the 2019 position as well as looking at the changes that are coming into force in 2020.

2019 position recap

From 6 April 2015 all non-UK resident individuals holding residential properties have been subject to Capital Gains Tax (CGT) on disposals of their UK residential property.

However, from 6 April 2019, this charge was extended to include gains realised on the disposal of commercial properties, properties owned by diversely held companies, and gains on disposals of shares in companies owning UK property (where at least 75% of the value of the asset comes from UK property). This essentially means that there is a tax liability whether the property is held directly or indirectly by the individual. Any gain is rebased to 5 April 2019, meaning that only gains accruing from that date remain to be taxed. Any HMRC Return must be filed, and the tax paid, within 30 days of completion.

In relation to Stamp Duty Land Tax (SDLT) purchasers of UK residential property must now file an SDLT return and pay any SDLT due within 14 days of completion of a purchase; this was previously 30 days. Where an individual acquires a residential property (or a share in a residential property) which is classed as an "additional residential property" (ie not a replacement main residence) anywhere in the world, then SDLT is payable at rates rising to 15% on prices above £1,500,000.

For a company purchasing residential property in the UK at a purchase price that exceeds £500,000, SDLT will be payable at a flat rate of 15% (unless the company holds as nominee for an individual). If the property is acquired for the purposes of a UK rental or development business then there may be exemptions which apply.

Properties owned by UK and non-UK resident individuals that are let are subject to income tax on rental income, while a company holding UK residential property is liable to pay the Annual Tax on Enveloped Dwellings (ATED). The level of charge is dependent upon the property's market value at the later of 1 April 2017 or the purchase date. The charge is subject to a number of limited reliefs, including where the property is rented on a commercial basis to an independent third party. Non-UK resident companies are also liable to pay basic rate income tax on profits if a property is let.

The 2020 changes

From 6 April 2020, the capital gains tax position will alter in that the 30 day filing and payment deadline will be extended from non-UK resident individuals and companies to all individuals and companies, including those who are resident within the UK.

This new reporting and payment regime will only apply to gains accruing on disposals made on or after 6 April 2020 (ie the tax year 2020-2021). This means that where contracts have been exchanged under an unconditional contract prior to 5 April 2020, but completion takes place on or after 6 April 2020, the 30 days filing requirement does not apply.

For non-UK resident companies owning and letting residential properties, the tax due to be paid from 6 April 2020 will be Corporation Tax (in the same manner as UK companies) rather than income tax in respect of UK rental income.

General

For the purposes of all of the above, non-resident for tax purposes is determined by a residency test based on the number of days spent in the UK during a tax year. An individual is automatically non-resident if they spent fewer than 16 days in the UK (or 46 days if they have not been classed as UK resident for the previous three tax years) or they work abroad full time and have spent fewer than 91 days in the UK in the tax year.

A company is generally a non-UK resident company if its registered office is based overseas, as long as it is not managed or run from the UK.

There are penalties for missing the 30 day deadline for filing and payment; this includes £100 if the initial deadline is missed for a period of up to six months, followed by accruing penalties of £300 for each 6 months thereafter. Interest may also be chargeable.

And finally…

The next budget is due to be held on 11 March 2020. It is anticipated that there may be more changes announced to the SDLT regime, specifically, the introduction of a further 3% surcharge on non-UK residents buying UK residential property. This would raise the top rate of SDLT to 18%.