The UK government also intends to tax any gains on the disposal of shares in crown dependency companies whose value is primarily derived from the development of UK property.
In a statement, HM Treasury advised: “The amendments remove a potential loophole that may have allowed non-UK resident property developers to avoid income tax or corporation tax in the UK in certain circumstances and are effective from 16 March 2016.”
Quite a surprise
Mark Davies, managing director of Mark Davies & Associates, said: “This is quite a surprise and overturns a long standing loophole, known as “the island handshake”, which resulted in the UK’s crown dependencies becoming a centre of excellence as the ‘doorway’ for investment in the UK.
“What this means is that development profits of UK residential or commercial property, or the sale of shares in offshore structures mainly developing UK residential or commercial properties, will become subject to UK corporation tax.
“It is not known how the UK would become aware of the sale of the shares or how the collection of tax could be enforced.
“The gain on the sale of residential property held by offshore structures is already taxable as it is subject to ATED (annual tax on enveloped dwellings) related capital gains tax or non-resident capital gains tax.”
Offshore shift
He continued: “Gains on the sale of an investment in commercial property by an offshore structure is still free from UK corporation tax or capital gains tax, so we would expect to see a shift in investment plans by offshore investors.
“However commercial property became more expensive with the 1% increase in Stamp Duty Land Tax to 5% for commercial property over £250,000,” Davies concluded.
