Current exchange rates make investment in UK commercial property cheaper for overseas investors, but the tax environment is less friendly than it previously was.

The current exchange rate for US dollar investors in UK commercial property would seem to make investment in the sector from overseas an attractive proposition. At the time of writing, the exchange rate is £:$1.23. This compares to a rate of £:$1.66 just five years ago. To put this into context, a commercial building valued at £2.3m would now cost $1m less than it would have 5 years ago.

The investor still has to consider rental yields, capital growth and the risk of sterling devaluating further, but on paper the investment seems considerably (just over 25%) more attractive than it was back in 2014 – all other things being equal.

One thing which is not equal, however, is the tax treatment of the investment in UK commercial property.

April 2019 changes

Since 6 April 2019, gains made on the disposal of UK commercial property will be taxed on non-resident individuals at 20% and (since 1 April 2019) on non-resident entities at corporation tax rates (currently 19%). The rules can also apply where the shares in a UK company which is “property rich” are disposed of.

Properties held prior to this date are rebased to their market value on the date on which the new regime was introduced, such that only increases in value from April 2019 will be taxed. It is therefore worth obtaining a valuation for any property held at that date as this will be helpful on eventual disposal.

The benefits of holding UK property through offshore structures have therefore been removed, and it is worth considering moving structures onshore to reduce the costs of maintaining offshore structures.
Those with such structures should seek advice to consider what the best way forward is before there is time for significant gains to accrue.

If you have any queries, please speak to your usual Campbell Dallas advisor.

craig.coyle@campbelldallas.co.uk
0141 886 6644

The information in this blog should not be regarded as financial advice. This is based on our understanding in August 2019. Laws and tax rules may change in the future.