Publication
Ireland
On 31 October 2023, the Screening of Third Country Transactions Act 2023 (the “Act”), which establishes a new foreign direct investment ("FDI") screening regime in Ireland, was enacted.
Global | Publication | November 2017
The Government has announced its intention to tax gains which arise from April 2019 when commercial or residential property is sold (directly or indirectly) by a non-UK resident person or entity. This represents a significant change in the way in which non-UK residents are taxed when they dispose of UK property, or their interest in a property holding vehicle.
Currently, non-UK resident owners of UK commercial property which is held as an investment are not subject to UK tax on any gain realised on a sale of the property, or indeed a sale of the interest in the property holding vehicle. Non-UK resident owners of UK residential property are already within the charge to UK tax on gains where the property is sold, unless either (i) the disposal is made by a non-UK resident which is “widely held”1 or (ii) an interest in the vehicle which holds the property is sold instead.
Entities that are currently exempt from, or outside the scope of, UK capital gains tax (such as an overseas pension scheme) will continue to be exempt from the new charge.
With effect from April 2019, any capital gain which is realised on a direct sale of an interest in UK property (commercial or residential) will be subject to UK tax.
For all commercial property and any residential property that is owned by a widely held entity:
For residential property that is owned by an entity that is not widely held:
Instead of selling a UK property directly, an investor may choose to sell their interest in the property holding vehicle (such as shares in a Jersey company, or units in a non-UK resident property unit trust). At the date of the disposal, the seller must consider:
If these conditions are met, there will be a UK tax charge by reference to the increase in value of the investor’s interest in the vehicle. For all commercial and residential property which is sold indirectly the tax charge will be by reference to any increase in value in the interest which is sold from April 2019. Any gain which has accrued up to that date will not be taxed.
The tax will be calculated in the usual way, so that capital losses arising on a disposal of chargeable assets will be available to set against an entity’s gains (subject to meeting the usual conditions).
If the seller is a company, the gain will be subject to UK corporation tax on chargeable gains (currently 19%, but falling to 17% by 2020) If the seller is an individual or an entity otherwise not subject to UK corporation tax, the gain will be subject to UK capital gains tax (currently 28% for individuals disposing of land).
The UK Government has also announced that indexation allowance, which is available to companies that realise gains on chargeable assets, will be fixed at a rate to be determined on 1 January 2018. This means that inflationary gains will no longer be outside the scope of the UK tax charge.
Entities that are currently exempt from, or outside the scope of, UK capital gains tax will remain so. This will include overseas pension funds.
The rules on the Substantial Shareholding Exemption, which provide an exemption from UK tax on gains arising from the sale of shares in certain qualifying companies (subject to various conditions being met), have been expanded recently and may, in certain cases, apply to disposals of “property rich” companies or groups of companies by companies owned by qualifying institutional investors2.
The UK has an extensive network of double tax treaties, which have been negotiated to allocate taxing rights between the jurisdictions.
The consultation document indicates that the UK will seek to re-negotiate any tax treaties which it considers are being exploited to enable some non-UK residents to keep profits and gains from UK land outside of the UK tax net.
An anti-forestalling rule is also in force which will apply to certain arrangements entered into on or after 22 November 2017, and is aimed at preventing non-UK residents from moving to, or establishing themselves (for tax purposes) in, those jurisdictions which have tax treaties with the UK which could enable profits and gains to remain outside the scope of UK tax.
Where a non-resident investor holds an interest in UK property through a collective investment vehicle, such as a real estate investment trust (REIT) or a property authorised fund, they will be subject to a UK tax charge if they dispose of their interest in the fund, provided the property richness and the ownership thresholds are met.
A UK REIT will remain exempt from tax on gains realised on sales of UK property, whether the holding company is a UK or non-UK company within the REIT group. Any distribution of the proceeds of the disposal would be treated as a property income distribution, which is subject to a 20% withholding tax.
The expectation is that the seller of the UK land, or of the interest in the property holding vehicle, will report the transaction to HM Revenue & Customs and will account for the tax which is due. In addition, in some cases there will be an obligation on UK based advisers who are involved in the transaction to notify HMRC that a disposal has taken place.
These changes are significant, and while the proposals have been announced in the form of a consultation, it is clear that a policy decision has been taken to bring all gains realised from UK property into the scope of the charge to UK tax; the consultation will focus more on whether the proposals are effectively targeted and whether the regime will place unnecessary burdens on affected taxpayers.
The proposals seek to create a single regime for the taxation of gains deriving from UK land which are realised by non-UK residents. While any simplification of the tax regime is welcome, the expansion of the corporation tax and capital gains tax regimes represents a fundamental change to the UK tax system and one which was not signalled by the UK government publicly in advance.
The consultation is open for comments until 16 February 2018, with legislation expected to be published in the summer of 2018.
A widely- held company is one that is not “close”. Broadly, this means that the company is not controlled by five or fewer participators, or participators who are directors of the company.
Which includes certain registered and overseas pension schemes, companies carrying on life assurance business, sovereign wealth funds, charities, investment trusts, authorised investment funds and exempt authorised units trusts.
Publication
On 31 October 2023, the Screening of Third Country Transactions Act 2023 (the “Act”), which establishes a new foreign direct investment ("FDI") screening regime in Ireland, was enacted.
Publication
The EU Foreign Subsidies Regulation, or FSR, is intended to prevent or remedy distortions of the EU internal market caused by “foreign” – meaning non-EU – subsidies benefitting companies active in the EU.
Publication
The conventional wisdom is that ‘securitisation caused the great financial crisis’ (GFC). A further piece of conventional wisdom is that this was due to the misalignment of incentives between securitisation originators and securitisation investors . This conventional wisdom in turn drove much of the regulation of securitisation we now have.
Subscribe and stay up to date with the latest legal news, information and events . . .
© Norton Rose Fulbright LLP 2023