In 2015 George Osborne, the then chancellor, introduced a capital gains tax on residential property sales for non-residents. However, as the idea was to take some of the heat out of the residential property market, especially in London and the Home Counties, he did not include profits made on the sale of commercial property within these new rules. Whilst UK resident individuals and companies pay corporation tax on money made when they sell commercial properties, non UK resident companies and individuals do not.
Campaigners say the omission has created a vast loophole worth an estimate £6bn to non-residents and all they need to do is to re-designate their flats and houses for commercial use, to enable them to avoid tax on money made when they are sold.
However, a spokeswoman for the Treasury has indicated that “HMRC has seen no evidence of foreign nationals changing the status of their properties to avoid paying capital gains tax”. And so, although it is estimated that closing the loophole could raise between £5bn and £8bn per year, no concrete statistics are currently available to support this.
According to available data, approximately one-third of all UK commercial real estate is held through offshore companies or owned by non UK residents, often based in tax havens or structured so that they do not pay tax on the capital gain.
To address this issue which would bring the UK in line with many other jurisdictions which already levy capital gains tax on all real estate sales both residential and commercial, Mrs Stella Creasey, MP for Walthamstow made a request for an amendment to close this loophole before the Commons Finance Bill vote on Tuesday 31 October. However, despite cross-party support, the amendment to review the policy was defeated by a majority of 30 votes. It is highly likely however that this is not the end of the matter and that the position on the sale of commercial property by non residents will continue to be an area for review going forward.