The recent Budget contained a hidden surprise for overseas investors planning on buying and selling commercial property in the UK.
From April 2019, foreign investors will have to pay capital gains tax (CGT) of around 9% on all profits from commercial property sales.
Currently, profits made from commercial land and buildings owned by non-UK residents, and not used for the purposes of a UK trade, are not liable for capital gains tax. However, chancellor Phillip Hammond revealed last month that this loophole is set to close.
The changes will have a significant impact on overseas investors who currently own UK commercial property if they are planning on selling after the April 2019 deadline, as the rules will apply to gains arising after this date.
Any gains will be subject to tax at either the capital gains tax rate for individuals or corporation tax rate for companies. However, the Treasury has said that there will be exemptions for foreign pension funds purchasing commercial property within the UK.
It is estimated that the change will raise around £500m for the Treasury by 2024, but some believe the new tax will affect the number of overseas buyers wanting to invest in the UK, as well as creating additional uncertainty during an already volatile time as Brexit negotiations continue.
“At the moment there’s a climate of enormous uncertainty, not least because of Brexit,” said Ion Fletcher, director of finance policy at the BPF. “I think this is just another thing that will make investors think twice about putting their money into the UK.”
However, Robert Moir, partner and head of corporate real estate at Pinsent Masons, was more positive. “We’re seeing a lot of incoming investment from China, the Gulf, Canada, and I don’t think this will materially change that,” he said. “I think the fundamentals of UK property are reasonably strong.”