Finance Bill: Non-resident’s CGT on UK real estate | KPMG in the UK
close
Share with your friends

Finance Bill: Non-resident’s CGT on UK real estate in CIVs

Finance Bill: Non-resident’s CGT on UK real estate

The CIV rules provide for two types of elections – the transparency election or the exemption election – that a CIV can make for NRCGT.

1000

Also on KPMG.com

The Government has published how the rules on non-UK residents’ gains on disposals of UK real estate (effective from 6 April 2019) would apply to Collective Investment Vehicles (CIVs) investing predominantly in UK land, and those holding an interest in such vehicles. The CIV rules provide for two types of elections – the transparency election or the exemption election – that can be made in respect of CIVs for capital gains purposes. Where an election is made it will impact the tax treatment of disposals made by the investors, the CIV and/ or the entities in the underlying structure.

On 7 November 2018 the Government included new legislation in the Finance Bill on how these rules apply to CIVs. These new rules are in addition to the 6 July 2018 draft legislation we have provided commentary on previously.

What is the measure/ Who is this relevant to:

CIVs investing predominantly in UK land, and those holding an interest in such vehicles.

What will the impact be

The CIV rules provide for two types of elections that a CIV could make:

  • The transparency election
    • The effect of this election is to treat an offshore CIV as a partnership for capital gains purposes, so that investors are taxed on disposals of the underlying assets of the CIV. This exemption is only available to CIVs that are income-transparent such as a Jersey property unit trust. Once made, the election cannot be withdrawn.
    • It is likely to be preferred by CIVs in the form of smaller joint venture (JV) arrangements (rather than funds where regular changes of investors is expected) with predominantly exempt investors.
  • The exemption election
    • Eligible CIVs meeting certain qualifying conditions and which commit to report certain information annually to HMRC can make an election that provides an exemption for the CIV itself and for entities in which it has at least a 40 percent investment. The CIV must be UK property rich. The investors are chargeable on their gains on disposals of their interests in the CIV. The relevant fund manager may revoke an election by giving notice to HMRC.
    • It is likely to be used mainly by widely held funds with large structures, and particularly where the investors are exempt.

Default treatment of CIVs:

The default treatment of non-resident CIVs will be that they are companies for capital gains purposes (partnership CIVs remain transparent for gains). A disposal by a non-resident investor in a non-resident CIV which is UK property rich will be chargeable as a disposal of an interest in a UK property rich company in accordance with the indirect disposal rules. Such investors will not benefit from the 25 percent ownership exemption.

Qualifying conditions for the exemption election:

Broadly, the following conditions should be met:

Condition 1 - The CIV is a collective investment scheme and it meets the genuine diversity of ownership condition, or the CIV is a body corporate and it meets the recognised stock exchange condition and the non-close condition, or any CIV meets the UK tax condition and the non-close condition.

Condition 2 - The CIV must have made reports to HMRC of disposals of interests in it by investors within the 24 months prior to the disposal requiring an exemption. See further detail below in respect of reporting.

Condition 3 - The CIV must be UK property rich.

What action should be taken:

The transparency election must be made within 12 months of the CIV making its first acquisition in UK land (or 5 April 2020 for a fund existing on 6 April 2019).

The election for exemption would have effect subject to provision of information or documents as may be specified by HMRC. These must be provided in respect of every period of account, within 12 months from the end of the period of account.

 

For further information, please contact Peter Beckett or Saloni Hukku-Sawhney

Connect with us

 

Request for proposal

 

Submit