Indirect disposals of interests in UK land by non-residents

By Tolley
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The following Corporation Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Indirect disposals of interests in UK land by non-residents
  • Property richness test
  • Substantial indirect interest
  • Trading exemption
  • Calculating the gain or loss on an indirect disposal

UK property is often held by non-resident persons indirectly, typically through the holding of shares in a company that in turn directly owns the property. For corporate groups, this form of ownership of UK property is very common, with property holding companies often established in such circumstances. Prior to 6 April 2019, these types of indirect disposals by non-residents were not commonly within the scope of UK corporation tax.

However, from 6 April 2019, disposals of shares (or similar interests) in ‘property rich’ companies are subject to tax. The legislation is drafted with reference to a right or interest in companies that are ‘property rich’, but also includes entities deemed to be companies, such as offshore collective investment vehicles who fall within the definition of company for these purposes.

The following two tests must be performed at the date of disposal to establish whether an indirect disposal is chargeable to tax:

  • is the disposal of a right or interest in a company that is ‘property rich’ (broadly, one where at least 75% of its gross asset value is from interests in UK land)?
  • does the non-resident person hold a ‘substantial indirect interest’ in the company either at the time of the disposal or at some point in the two years prior to that date (substantial being an interest of 25% or more)?

TCGA 1992, Sch 1A, Part 1, para 1; FA 2019, Sch 1, Part 1, para 14

If either the interest is in a company that is not ‘property rich’ or the interest is not ‘substantial’, any gain on the indirect disposal is not chargeable to UK tax.

There is also an exemption available in relation to disposals of property rich companies where the underlying property is used for the purposes of

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