BUYING AND SELLING REAL ESTATE IN ENGLAND AND WALES 109
claimed by NNPs carrying on real estate development or using real estate for commercial renting to third parties, commercial trade purposes or as employee accommodation. Conditions apply. • For interests in UK land (residential or commercial) owned by non-resident individuals or trustees, Non-Resident Capital Gains Tax ( NRCGT ) may be payable at rates of either 18% or 28% (residential property) or 10% / 20% (non- residential property) (rate depends on total UK income and gains) on gains realised on a disposal of the real estate. Main home relief may be available to exempt some or all of the gain if relevant conditions are met. • Disposals of interests in UK land (residential or commercial) directly owned by non-resident companies are subject to UK corporation tax. The current rate of corporation tax is 25%. No main home relief can be claimed. • From 6 April 2019, disposals of assets deriving at least 75% of their value from UK land (commercial or residential) by non-resident persons who have a substantial (25%) indirect interest in the land are also chargeable to NRCGT or corporation tax (other conditions apply). For example, disposals of shares in ‘property rich’ offshore companies are caught. • In certain situations, re-basing of assets to their 5 April 2019 market value will be applied automatically unless an election is made. • On or after 27 October 2021, disposals of UK residential property interests must be
reported, and any CGT paid, within 60 days of completion. • Income tax ( IT ) is payable by individuals on rental income. Various deductions are permitted against rental income, including interest payable on a loan to purchase or improve the real estate. However, from 6 April 2017 a phased withdrawal of interest deductibility applies to individuals (but not companies). Capital allowances may also be available for commercial real estate. • UK resident companies are liable to corporation tax on their profits (rental income, capital gains or trading income). As from 6 April 2020, non-UK resident companies are subject to corporation tax on income deriving from UK properties. • Inheritance tax ( IHT ). Non-UK domiciled individuals are liable to IHT on their UK situated assets, which includes UK real estate. Holding UK situated assets on death, or gifting them in lifetime, can give rise to IHT liability of 40%. Since 6 April 2017, it is no longer possible to avoid an IHT exposure by holding UK residential property through an offshore company – the company is now effectively transparent for IHT purposes if it is the equivalent of a close company and its value is attributable, directly or indirectly, to UK residential property. Trusts holding shares in offshore companies with UK residential property interests require review, as they can now be subject to periodic charges to IHT and give rise to IHT issues for settlors who are also beneficiaries. Loans made to third parties to facilitate the purchase of UK residential property can, in certain situations, cause the lender to have an IHT exposure. Certain
ILN Real Estate Group – Buying and Selling Real Estate Series
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