AREF F-O-R-T Series Capital Gains Tax

Transcription

1 To take part in the audience polls during this event please search Slido.com into your web-browser and enter the code below. Ref: X1411 AREF F-O-R-T Series Capital Gains Tax Wednesday 14 th November 2018 Follow Tweet us: #AREFEvents For live poll & to ask questions go to: Slido.com - Ref: X1411 Kindly hosted by:

2 Welcome Chris Cattermole Head of BD, Alternatives, Link Asset Services For live poll & to ask questions go to: Slido.com - Ref: X1411 Kindly hosted by:

3 Introduction Matthew Roach Partner, KPMG For live poll & to ask questions go to: Slido.com - Ref: X1411 Kindly hosted by:

4 Agenda for today Welcome by Chris Cattermole, Link Asset Services Introduction by Matthew Roach, KPMG Presentation from James Konya, HMRC Presentation from Nick Burt, CMS CMNO Panel Discussion & Q&A featuring: James Konya, HMRC Nick Burt, CMS CMNO John Powlton, M&G Concluding remarks, Matthew Roach Coffee & Networking For live poll & to ask questions go to: Slido.com - Ref: X1411 Kindly hosted by:

5 Non Resident Capital Gains Tax

6 Proposed timeline NRCGT & corporation tax changes Consultation on Non-Resident Companies chargeable to income tax and Non-resident CGT ended Consultation on Taxing gains made by Non-Residents on UK immovable property ended Draft gains legislation for collective investment vehicles published Tax on gains legislation effective 20 March June November February July 2018 November 2018 April 2019 April 2020 Consultation on Non-Resident Companies chargeable to income tax and Non-resident CGT commenced Consultation on Taxing gains made by Non-Residents on UK immovable property commenced Draft legislation for both regimes published in the draft Finance Bill 2018/19 Non-Resident Companies move to corporation tax legislation effective 2018 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. Document Classification: KPMG Public

7 Non resident capital gains tax Direct disposals Tax or gains arising on or after 6 April 2019 Rebasing for tax purposes at 5 April 2019 Option to use historic cost Non resident companies: Corporation tax at 19% (17% for April 2020) Non resident individuals: Capital gains tax at 10/20% (commercial) or 18%/28% (residential) Non resident trusts: Capital gains tax at 20% (commercial) or 28% (residential) 2018 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. Document Classification: KPMG Public

8 Non resident capital gains tax Indirect disposals Tax on gains arising on or after 6 April 2019 Applies to property rich entities (>75% UK real estate) Where multiple entities are sold: - apply the test on an aggregated basis - ignore assets that are the counterpart to a liability in the arrangement 25% ownership threshold: - Two year lookback (ignore insignificant time periods) - Aggregate interests held by connected persons - Note modified partnership connected persons rule Rebasing for tax purposes at 5 April 2019 Option to use historic cost but cannot create allowable loss 2018 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. Document Classification: KPMG Public

9 Potential reliefs and exemptions Overseas pension schemes and Sovereign immune bodies General Substantial shareholdings exemption (SSE): - Applies where seller is a company - Investee company must be trading for 12 months before disposal - 10% minimum shareholding held for 12 months before disposal Qualifying institutional investors SSE: - Applies where seller is a company - Seller must be owned by QIIs >25% - No requirement for investee company to be trading - 10% minimum shareholding held for 12 months before disposal - Partial exemption QIIs 25%-80% - Full exemption QIIs >80% 2018 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. Document Classification: KPMG Public

10 Potential reliefs and exemptions Trading exemption: - Applies for any seller (not just a company) - Investee company s UK land interests (direct or indirect) are used for trading purposes - Trade has been carried on for previous 12 months and will continue for more than an insignificant period of time UK-Luxembourg double tax treaty - Relief for Luxembourg based seller - Consider anti-forestalling rule - Treaty renegotiation is underway 2018 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. Document Classification: KPMG Public

11 Speakers & Panellists Matthew Roach (Moderator) Partner KPMG James Konya Policy Specialist HMRC Nick Burt Tax Partner CMS CMNO John Powlton Head of Real Estate Tax M&G For live poll & to ask questions go to: Slido.com - Ref: X1411 Kindly hosted by:

12 To take part in the audience polls during this event please search Slido.com into your web-browser and enter the code below. Slido.com Ref:X1411 You can ask questions through Slido during the event. For live poll & to ask questions go to: Slido.com - Ref: X1411 Kindly hosted by:

13 Slido Live Poll: Go to Slido.com Ref: X1411 For live poll & to ask questions go to: Slido.com - Ref: X1411 Kindly hosted by:

14 Presentation James Konya Senior Policy Advisor, HMRC For live poll & to ask questions go to: Slido.com - Ref: X1411 Kindly hosted by:

15 Taxing non-residents gains on UK land Collective Investment Vehicles 14 November 2018 Security Marking Presentation Title 15

16 Content 1. Background to changes 2. Scope of the rules 3. Default rules for collectives 4. The transparency election 5. The exemption election 6. UK REITs Taxing non-residents gains on UK land Collective Investment Vehicles 16

17 Background to wider policy Overview of changes to capital gains for non-residents Builds on 2015 charge for disposals of residential property Brings in disposals of all UK land, by any type of person Includes indirect disposals of UK property rich companies Taxing non-residents gains on UK land Collective Investment Vehicles 17

18 Background to changes Collective Investment Vehicles Consultation process since November 2017 Two key issues identified relating to funds: Taxation of exempt investors Multiple charges within the fund structure Taxing non-residents gains on UK land Collective Investment Vehicles 18

19 Scope of the rules Meaning of Collective Investment Vehicle Collective Investment Scheme Alternative Investment Fund UK REITs under Part 12 CTA 2010 Non-resident companies like UK REITs Not a close company At least half income is property income from long-term investments Annually distributes all or substantially all that income Not liable to tax in any jurisdiction of residence Taxing non-residents gains on UK land Collective Investment Vehicles 19

20 Default rules for collectives Overview Offshore collectives meeting the definition other than partnerships deemed to be companies Chargeable to corporation tax on all disposals of UK land Treated as having shares so that investors will hold an interest in a UK property rich asset No 25% ownership exemption where the fund is property rich and not marketed as something other than a UK real estate fund Taxing non-residents gains on UK land Collective Investment Vehicles 20

21 Default rules for collectives Comparison with main indirect disposal rules Taxing non-residents gains on UK land Collective Investment Vehicles 21

22 Default rules for collectives Connection to collective investment Investors do not have 25% ownership exemption CIVs do not have 25% ownership exemption Taxing non-residents gains on UK land Collective Investment Vehicles 22

23 The transparency election Overview Offshore collective investment vehicles Income transparent At the point of election: UK property rich or marketed as intending to be All investors consent Treated as a partnership for capital gains Election is irrevocable Taxing non-residents gains on UK land Collective Investment Vehicles 23

24 The transparency election Partnership for capital gains Investors hold property of fund directly Annual return under section 12A TMA Partnership for related capital gains purposes, such as transparency for s1154 purposes for CG group SP D/12 applies to assist calculations UK resident investors included Taxing non-residents gains on UK land Collective Investment Vehicles 24

25 The transparency election Other matters Election must be made within 12 months of acquiring UK land or a UK property rich asset Election deadline for funds existing at commencement is 5 April 2020 Rebasing for investors holding an interest in CIV at commencement remains 5 April 2019 Life insurance companies still treated as having an interest in CIV Taxing non-residents gains on UK land Collective Investment Vehicles 25

26 The exemption election Overview Available in two forms: Election by offshore CIV, or Election by partnership CIV or CoACS on behalf of company it is invested in Asset must be UK property rich and meet qualifying conditions Annual return of information about CIV and investors Exemption extends to companies (including CIVs) at least 40% invested in, with proportionate exemption Taxing non-residents gains on UK land Collective Investment Vehicles 26

27 The exemption election Qualifying fund CIV UK property rich Any of the following: CIV Is a Collective Investment Scheme and meets GDO Is a body corporate, not close, and shares regularly traded on recognised stock exchange Any CIV, not close, UK tax condition Taxing non-residents gains on UK land Collective Investment Vehicles 27

28 The exemption election Qualifying company If CoACS, CoACS must be UK property rich If partnership, company must be UK property rich Either: CIV Company CIS meets GDO, or Company not close and meets UK tax condition Taxing non-residents gains on UK land Collective Investment Vehicles 28

29 The exemption election Base case Taxing non-residents gains on UK land Collective Investment Vehicles 29

30 The exemption election Reporting Name and address of the CIV making the report Total value of disposals and overall capital gain or loss Name, address, % held for entities in the structure covered by the exemption Total value of each of their disposals and overall capital gain or loss Name and address of all investors (UTR details if held), The total value of their disposals Taxing non-residents gains on UK land Collective Investment Vehicles 30

31 The exemption election Non-close test The company is not close, or is only close because of control by Qualifying Investors Qualifying Investors is the same as for REITs Institutional Investors, but: Also includes companies exempt under these rules, and There is a requirement that certain investors themselves either be not close or meet GDO Can trace indirect participants who are Qualifying Investors through bodies corporate Taxing non-residents gains on UK land Collective Investment Vehicles 31

32 The exemption election Companies used to hold interests in fund Where a company (body corporate) is used to hold an interest in a CIV subject to the election, and All of the investors are certain exempt, immune, etc. persons The company is exempt on gains on disposals of interests in the CIV Taxing non-residents gains on UK land Collective Investment Vehicles 32

33 The exemption election Interaction with other exemptions REITs are exempt on direct and (now) indirect disposals of UK land (within the PRB) Companies owned by Qualifying Institutional Investors can benefit from the SSE on indirect disposals of UK land Where separate investors bring separate exemptions, they add together (but not to exceed the gain or loss) Where the same investor provides multiple exemptions the priority will be: QII SSE REIT exemption Schedule 5AAA exemption Taxing non-residents gains on UK land Collective Investment Vehicles 33

34 UK REITs Exemption on indirect disposals of UK land A UK REIT company will be exempt on gains on disposals of UK property rich companies, including non-resident companies The gain is exempt based on the appropriate proportion which is the target company s PRB assets over total assets Also includes disposals of income transparent CIVs For these disposals, the appropriate proportion uses the CIV s property that is UK land and any UK land held through interests in other income transparent CIVs Taxing non-residents gains on UK land Collective Investment Vehicles 34

35 Thank you James Konya HM Revenue & Customs 100 Parliament Street London SW1A 2BQ Taxing non-residents gains on UK land Collective Investment Vehicles 35

36 Presentation Nick Burt Tax Partner, CMS CMNO For live poll & to ask questions go to: Slido.com - Ref: X1411 Kindly hosted by:

37 CIV Regime How will it work in practice?

38 Transparency election Effect of transparency election is to treat the offshore CIV is if it a partnership Likely to be appropriate for flat/simple SPV or JV structures and unlikely to be appropriate for open ended structures Election must be made within 12 months and is irrevocable Could still be relevant within an exempt fund 25% test not relevant to CIVs, whether elected transparent or not

39 CIV regime Elected transparent fund Investor 1 Investor 2 Investor 1 Investor 2 NRCGT paid at investor level according to the tax status of each investor JV JUT Deemed company becomes a deemed partnership JV JUT Fund/JV/SPV structure treated as tax transparent

40 Transparent fund What does it mean in practice? Investor 1 Investor 2 JV JUT Sale of an interest in the JV JUT is a deemed NRCGT disposal by the Investors of the of the underlying property Sale of the property is a deemed NRCGT disposal by the Investors

41 Transparent fund Example Investor 1 Investor 2 50% 50% 75m 50% Purchaser Purchaser buys 50% stake in JV JUT for 75m. Purchaser has 75m base cost in property going forward Investor 2 makes a 25m gain on its 50% of the underlying property: JV JUT Nil tax liability if Investor 2 is tax exempt; 4.75m NRCGT liability if Investor 2 is taxable No NRCGT liabilities in the JV JUT as it is elected transparent Note No rebasing for UK residents 100m acquisition cost/rebased cost 150m market value

42 Jersey Unit Trusts that are not elected transparent UK tax exempts Sovereign wealth Overseas pension fund Other non- UK pension fund Overseas company Pre 2019 Post 2019 No charge on disposal of units, but anticipated discount to NAV to reflect JUT gain JUT Charge on disposal of units, plus anticipated discount to NAV to reflect JUT gain

43 Jersey Unit Trusts that are elected transparent UK tax exempts Sovereign wealth Overseas pension fund Other non- UK pension fund Overseas company Pre 2019 Post 2019 Structure effectively treated as a partnership JUT Structure effectively treated like a partnership and investor taxable on deemed disposal of underlying property

44 Exemption election CIV and underlying structure remains notionally chargeable to tax, but election exempts the tax Incidence of tax arises at investor level on gains on disposals of interests in the CIV Likely to be appropriate for widely held funds with multi-layered structures, and unlikely to be appropriate for JV arrangements 25% test not relevant to CIVs, whether elected exempt or not

45 CIV regime Elected exempt funds Qualifying fund Qualifying company Investors Offshore CIV ( Q ) Investors Fund LP NRCGT paid at investor level according to the tax status of each investor SPVs Holdco ( Q ) Fund structure exempt from NRCGT, subject to reporting and other requirements SPVs

46 Exempt fund What does it mean in practice? Investors Offshore CIV SPVs Redemptions, returns of capital and deemed/actual capital distributions are disposals for NRCGT Sale of Offshore CIV is a disposal for NRCGT, but there are no latent gains in the underlying structure provided election remains effective or has been in place for 5 years Sale of SPVs not a disposal for NRCGT, and properties within the SPVs are rebased Net effect: Multiple NRCGT charges are avoided Exempt investors should not suffer NRCGT Sale of properties not a disposal for NRCGT

47 Exempt fund Sale and purchase of SPVs Investors Net effect: Seller 150m Offshore CIV 200m Purchaser No discount for CGT on purchase of SPV SPV SPVs SPV No NRCGT charge for Offshore CIV Asset rebased to market value for Purchaser, so no discount on sale 100m acquisition cost 150m market value Base cost irrelevant within exempt structure 200m MV at time of sale 200m base cost

48 Exempt fund Joint venture disposal Investors Offshore CIV 50% JV Partner 50% JV SPV is tax exempt in respect of the Offshore CIV s indirect proportion 9.5m NRCGT charge due to the JV partner JV SPV 200m Purchaser Articles need to provide for enhanced dividend due to the Offshore CIV 100m acquisition/rebased cost 200m market value

49 Exempt fund Joint venture disposal Investors Offshore CIV JV Partner JV JUT elected transparent, so deemed disposal by the unitholders 50% JV JUT 50% 200m Purchaser Offshore CIV tax exempt JV partner potentially taxable on 50% share - 9.5m 100m acquisition/rebased cost 200m market value

50 Exempt fund Distribution of proceeds 100m acquisition/ rebased cost Investors Offshore CIV Offshore SPVs 200m distribution 200m Purchaser SPV Distributions potentially not taxable under double tax treaties Rules deem there to have been a disposal and reacquisition, with NRCGT arising (if at all) at the time funds are distributed to investors 100m gain subject to NRCGT according to tax status of investors

51 Exempt fund Property richness test Investors Did the CIV cease to be property rich? Not if: SPV 1 Offshore CIV SPV 2 Widely marketed; and 40% of assets expected to be in the UK Specific rules to deal with failures to meet conditions for exemption: Breaches of 30 days ignored Breaches of 9 months trigger deemed disposal, but election continues to have effect Q1-100m purchase Q2-115m purchase

52 Exempt fund Treaty protected investors Non-Lux Investors Lux Investors <75% >25% Offshore CIV SPVs Does the fund qualify for exemption? Fund must be either a CIS that meets genuine diversity of ownership ( GDO ) test; or a body corporate that is non-close and traded on a recognised stock exchange; or meets the UK tax condition and is nonclose HMRC reserves the right to revoke an election to safeguard the public revenue Revocation triggers a deemed disposal of all underlying assets

53 Exempt fund Non-close test Qualifying Investors: Pension fund Insurance company Charity Registered provider Sovereign Qualifying Investors (if non-close): Authorised unit trusts OEICs and overseas equivalents Limited partnership CIS REITs and overseas equivalents Offshore CIV >50% Qualifying investors non-close

54 REITs Investors REIT PIDs Dividends Tax exempt on property rental business Distributions primarily subject to 20% withholding tax but: exemption for tax exempts such as pension funds treaty relief often lowers withholding tax to 15% SPVs Rent

55 REITs anticipated changes CIV regime could have given offshore funds tax advantages over UK REITs REITs will become tax exempt on SPV disposals, but distributions subject to withholding 25% test does not apply as the REIT will be a CIV 3 year development rule Rebasing subject to property remaining in the SPV for at least 2 years

56 REITs New rules Investors PIDs Distributions of underlying rental income, and any gains from SPV sales primarily subject to withholding tax REIT All disposals of an interest in the REIT potentially subject to NRCGT Dividends SPVs REIT tax exempt on disposal of SPVs, with no requirement to distribute gains Rent REIT tax exempt on rental income, but must distribute 90% REIT tax exempt on disposals of property, with no requirement to distribute gains

57 Nick Burt Partner (Tax) T E nick.burt@cms-cmno.com Your free online legal information service. A subscription service for legal articles on a variety of topics delivered by . cms-lawnow.com Your expert legal publications online. In-depth international legal research and insights that can be personalised. eguides.cmslegal.com CMS Legal Services EEIG (CMS EEIG) is a European Economic Interest Grouping that coordinates an organisation of independent law firms. CMS EEIG provides no client services. Such services are solely provided by CMS EEIG s member firms in their respective jurisdictions. CMS EEIG and each of its member firms are separate and legally distinct entities, and no such entity has any authority to bind any other. CMS EEIG and each member firm are liable only for their own acts or omissions and not those of each other. The brand name CMS and the term firm are used to refer to some or all of the member firms or their offices. CMS locations: Aberdeen, Algiers, Amsterdam, Antwerp, Barcelona, Beijing, Belgrade, Berlin, Bogotá, Bratislava, Bristol, Brussels, Bucharest, Budapest, Casablanca, Cologne, Dubai, Duesseldorf, Edinburgh, Frankfurt, Funchal, Geneva, Glasgow, Hamburg, Hong Kong, Istanbul, Kyiv, Leipzig, Lima, Lisbon, Ljubljana, London, Luanda, Luxembourg, Lyon, Madrid, Manchester, Mexico City, Milan, Monaco, Moscow, Munich, Muscat, Paris, Podgorica, Poznan, Prague, Reading, Rio de Janeiro, Riyadh, Rome, Santiago de Chile, Sarajevo, Seville, Shanghai, Sheffield, Singapore, Skopje, Sofia, Strasbourg, Stuttgart, Tehran, Tirana, Utrecht, Vienna, Warsaw, Zagreb and Zurich. cms.law

58 Slido Live Poll Go to Slido.com Ref: X1411 For live poll & to ask questions go to: Slido.com - Ref: X1411 Kindly hosted by:

59 Panel Session & Q&A For live poll & to ask questions go to: Slido.com - Ref: X1411 Kindly hosted by:

60 Slido Live Poll Go to Slido.com Ref: X1411 For live poll & to ask questions go to: Slido.com - Ref: X1411 Kindly hosted by:

61 Concluding remarks Matthew Roach Partner, KPMG For live poll & to ask questions go to: Slido.com - Ref: X1411 Kindly hosted by:

62 Thank you Join us for coffee Tweet #AREFEvents For live poll & to ask questions go to: Slido.com - Ref: X1411 Kindly hosted by: