The UK, as a whole, is very welcoming to overseas investors and allows them to invest in the property market in much the same way as UK residents. There are, however, three proposed changes in the pipeline, which, if implemented, will need to be factored into any investment decisions taken by overseas investors who are currently active in the UK property market.
Capital Gains Tax applied to non-residents investing in UK property
The basic idea behind this move is to put non-resident investors on an equal footing with resident investors, which, in principle, is fair and reasonable, but in practice could lead to a number of complications.
The UK government has acknowledged this and has proposed implementing a collective investment vehicle (“CIV”) regime to ensure that CGT is only applied to eligible investors and that investors who might reasonably expect to be exempt from UK tax for whatever reason, such as a reciprocal tax treaty, continue to remain exempt from it.
Therefore, it seems likely that the main impact of this proposed change, if implemented, will be more an issue of ensuring compliance and the necessary administration and costs involved with this, than one of property investors being faced with the prospected of being taxed by multiple authorities.
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Enforced registration for overseas owners of UK real estate
In short, the UK government intends to mandate that any individual or legal entity which resides overseas (in a physical or legal sense), will need to identify themselves and their holdings by means of a public register at Companies House.
There may be some exemptions for overseas governments and other recognised public authorities, although this will not be known for certain, one way or the other, until the draft legislation becomes law. The intention is that the register will become operational in 2021 and that overseas investors will be given 18 months to register or divest themselves of their real-estate holdings. Failure to comply with this requirement could lead to criminal sanctions being applied.
While this new register is an attempt to improve the transparency of the UK property market and, in particular, to reduce its vulnerability to exploitation by money-launderers, it may have the unintended consequence of leading to privacy breaches since individuals who own property would be required to have elements of their private data laid open to public access in a central location. Even though the current proposals allow for some data to be redacted (for example date of birth), this may not be enough to make all overseas investors feel comfortable about this situation. Investors who feel that this measure would be too great an intrusion into their privacy may therefore wish to look at their options as quickly as possible.
Fifth Anti-Money Laundering Directive (MLD5)
The expected implementation of the EU’s MLD5 is in Q1 2020, which is after Brexit is due to have happened, although it may be within the proposed transition period, which is due to finish at the end of December 2020. It may also be that the UK agrees to implement the measure as part of a soft Brexit. That being so, investors are recommended to work on the assumption that the trust registration requirement will be extended to all non-UK trusts that own UK real estate, even if they are not (yet) eligible for UK tax.