HMRC have published a consultation on draft regulations to amend the non-resident Capital Gains Tax (CGT) rules. The proposed regulations are intended to address instances where disproportionate burdens can arise to certain investors and correct minor drafting errors. The proposals include the introduction of a new 10% de minimis holding threshold for certain non-resident collective investment schemes and life assurance companies who dispose of interests in UK property rich collective investment vehicles (CIVs).
The new 10% de minimis holding requirement is proposed to apply to:
i. non-UK resident CIVs which are broadly not UK property rich and meet a genuine diversity of ownership or non-close condition; and
ii. overseas life assurance companies which are not UK resident and do not have a UK permanent establishment.
The 10% de minimis holding threshold means that qualifying non-UK resident CIVs and life assurance companies will no longer be within the charge to non-residents CGT in respect of disposals of holdings of less than 10% in UK property rich CIVs including real estate investment trusts (REITs). The proposed 10% de minimis threshold is intended to apply with retrospective effect from 6 April 2019.
The proposal is significant for non-UK resident CIVs and overseas life assurance companies with investments in UK property rich CIVs and REITs. The change is expected to mean that many of these investors will be outside of the charge to UK tax, and remove the associated tax compliance requirements.
The draft regulations also propose changes in respect of correcting minor errors. This includes an amendment relating to how the property income condition applies for the purposes of determining whether a non-UK resident company within a group should be considered a CIV for the purpose of the rules. This change is expected to apply from the commencement date of the regulations. A draft regulation is also included to ensure that an election made before the commencement of the amendment regulations does not become invalid.
Non-resident CIVs and life assurance companies should review their holdings in UK property rich CIVs and assess whether the conditions for the de minimis threshold are met.
The consultation period runs until 16 December 2020.