Non-Resident Capital Gains Tax (NRCGT) will be extended to all gains on immovable UK property from 6 April 2019, which means that from this date it will include commercial property. 

NRCGT is essentially a levy imposed (following a disposal) on any gain in value (from April 2019 or the original acquisition date) on property held by offshore investors. In 2013 we saw NRCGT come into effect in the residential property market in the UK and, as of next April, all overseas investors who hold UK commercial property will be required to complete NRCGT computation forms upon the disposal of those properties. This brings the UK in line with other global jurisdictions.

There has, however, been a recent announcement regarding some important exemptions for 'collective investment vehicles' such as Jersey Property Unit Trusts (JPUTs) and Real Estate Investment Trusts (REITs), which means that these investors will only be taxed on disposal of their interest in the funds.   

NRCGT will range between 18 and 28 per cent, with the potential for companies to be at the lower end of this scale and individual investors at the higher, which could result in us seeing more joint venture investments.

The advantage of the levy coming into effect on 5 April 2019 is that the tax will be applicable to any growth after this date and will not be backdated. While this date has been set, we wouldn’t advise a huge flurry of activity from offshore investors to acquire valuations on their commercial assets immediately. Instead, using the benefit of hindsight to provide a more accurate valuation is wise.

Where a non-resident landlord intends to hold onto a property for a number of years and not sell quickly (say within the next couple of years) valuers can give the most accurate opinion later in 2019 when the sale prices achieved in the preceding six months will give the best indicator of the April 2019 value, assuming there have been no significant changes to the property during this timeframe.

An unrealistically high valuation will not be accepted by HMRC when there is a disposal; an accurate valuation undertaken with relevant comparables sold close to April 2019 (before or after) will be accepted. The NRCGT computation forms need to be completed 30 days after the completion of a sale.

It’s also important to note that a valuation is only needed when there’s a disposal. Where the intention of the non-resident is to sell within the short term, it will be straightforward for a valuer to provide an opinion taking into account the actual sale price for the April 2019 value. In these situations it may be wise to hold off getting the valuation until close to the end of the marketing period; the sales history will be the best evidence.  

If there are possible works planned which will enhance the value of a property, consideration should be given to undertake these before April 2019. In addition, if there are leases within the property to be renewed, terminated or reviewed in the short-term, which could increase the value of the property, it would again be advisable to get this done before April 2019.

While there will inevitably be some initial impact as the market adjusts to the extension of NRCGT, we expect that it will quickly become accepted as many other investment locations have similar regimes.

Further information

Contact Savills Commercial Valuation