Taxing gains made by non-residents on UK immovable property

Transcription

1 16 February 2018 NRCG Consultation HM Revenue & Customs Room 3C/ Parliament Street London SW1A 2BQ Submitted via to: RE: Taxing gains made by non-residents on UK immovable property Dear Mr Konya, BlackRock 1 is pleased to have the opportunity to respond to the consultation document released by both HM Treasury ( HMT ) and HM Revenue & Customs ( HMRC ) on 22 November 2017 in respect of taxing gains made by non-residents on UK immovable property. BlackRock supports a regulatory regime that increases transparency, protects investors, and facilitates responsible growth of capital markets while preserving consumer choice and assessing benefits versus implementation costs. We welcome the opportunity to comment on the issues raised by this consultation paper and will continue to contribute to the thinking of HMT and HMRC on any issues that may assist in the final outcome. We welcome further discussion on any of the points that we have raised. Yours sincerely, Nigel Fleming Managing Director Global Head of Product Tax nigel.fleming@blackrock.com Joanna Cound Managing Director Head of Public Policy, EMEA joanna.cound@blackrock.com 1 BlackRock is one of the world s leading asset management firms. We manage assets on behalf of institutional and individual clients worldwide, across equity, fixed income, liquidity, real estate, alternatives, and multi-asset strategies. Our client base includes pension plans, endowments, foundations, charities, official institutions, insurers and other financial institutions, as well as individuals around the world. 1

2 Executive summary HMT and HMRC are proposing to charge UK tax on gains earned by non-uk residents on disposals of all types of UK immovable property. These proposals include an extension to the existing rules that currently only apply to residential property and, in addition, non-residents will also be subject to UK tax on indirect disposals of UK immovable property where certain conditions are met. The stated policy goals of these proposals are to: Create a single, simplified tax regime in relation to taxing non residents on gains earned on disposals of UK immovable property; Create a level playing field between the tax regimes for UK residents and non UK residents with regard to gains earned in respect of UK immovable property; and Increase tax revenue earned by HMRC. In principle, we agree that a unified, simple tax regime that applies to all assets in scope of UK tax is beneficial. We also agree that it is reasonable for all investors holding investments in UK immovable property to be subject to a level playing field irrespective of whether they are resident in the UK or elsewhere. However, as outlined in the Consultation Document ( Condoc ), these proposals represent a fundamental change to the rules for taxing chargeable gains on immovable property and we are very concerned about the timing of these changes and their impact on the UK s attractiveness as an inbound investment location. They would take effect at a time when the nature of the UK s future relationship with the EU is uncertain. In our experience, investors do not like uncertainty and therefore may already be deterred from investing capital into the UK. Increasing the tax burden on UK immovable property against this background is likely to further damage the UK s reputation as an attractive location to invest. Furthermore, increasing the tax burden on UK real estate investments will reduce the return earned by non-resident investors. This may change the risk / reward profile of certain investment(s) such that potential investors are less willing to invest in these assets. Inward investment into the UK is a key driver for the UK economy in terms of economic growth and the UK s ability to withstand adverse macroeconomic events (the recent buoyancy of the UK market following the global financial crisis in 2008 relative to other jurisdictions was partly driven by overseas investors and their desire to continue to invest their capital into the UK). In addition, capital investment into the UK creates ongoing economic benefits in the form of real estate development (such as housing and transportation services) as well as job creation. We are concerned that these proposals will cause overseas investors to invest their capital elsewhere and that a significant proportion of the benefits outlined above will be lost. In addition, these proposals may cause asset owners to make significant redemptions, resulting in disorderly real estate markets and posing material challenges to the UK real estate fund industry. As a matter of principle, it is important to remember that real estate development and investment is a long-term activity that requires a stable tax and policy framework. Frequent tax regime changes undermine the certainty and predictability of the UK regime for inbound investors generally, and may undermine confidence in the UK as an investment location. BlackRock has regularly stressed the necessity of a stable legal and tax environment for investors, for instance in our ViewPoint: Infrastructure Investment: Bridging the Gap Between Public and Investor Needs, available here. We would welcome a discussion to explain further our reservations set out above with you in more detail in case this would be helpful. 2

3 Notwithstanding our concerns raised above, were these proposals to be enacted, we have the following comments relating to the detailed application of the rules: As it stands, the proposals for direct disposals will have a significant adverse impact on the significant number of tax-exempt investors 2 who invest in UK immovable property via offshore fund vehicles. It is critical that the needs of these investors are considered to ensure that they continue to be subject to the same tax outcome as they would have been if they had invested directly (principle of tax neutrality). The application of the ownership test and property richness test are highly burdensome in a collective investment vehicle (CIV) context. We are particularly concerned about the impact of the ownership test on seed (i.e. cornerstone) investors who are typically key to the successful launch of a fund. In certain scenarios, there is potential under the current proposals for double taxation to arise in respect of certain gains. For example, the offshore fund entity may suffer tax on a direct disposal and, at a later stage, if the proceeds from the sale have not been distributed, a nonresident investor may also suffer tax on disposal of their interest in the fund if certain conditions are met. We recommend that HMT and HMRC consider this issue further to ensure that the same gain will not be subject to UK tax twice. Responses to questions Chapter 2 Scope of the measure 1. Are there any issues specific to non residents when considering how they fit into the UK definitions of persons chargeable to UK tax (CGT or CT)? We do not believe there should be any significant issues for non-uk tax-exempt investors, although as noted above, we recommend HMT / HMRC confirm the definition of a tax exempt investor for the purpose of these rules. In this regard, non-resident taxable corporate entities with ordinary share capital would be subject to UK CT and any other non-uk resident person (including trusts, individuals etc.) would be subject to UK CGT. In our view, the key issue is the treatment of tax-exempt investors and ensuring that the definition of a tax exempt investor includes all the appropriate investor types (e.g., UK pension funds, qualifying overseas pension funds, charities, sovereign wealth funds). We consider that it is vital that the tax outcome for these investors is not adversely impacted as a result of these changes. This point is discussed further in our response to question 21. It is also unclear to us at this stage whether these proposals are intended to include infrastructure funds within the scope of the measure. Clarity on this point would be very useful. 2. Do you see any issues or complications arising with respect to rebasing which need to be addressed? We consider that rebasing is a reasonable approach to adopt in order to ensure that only gains arising to non-uk residents post-april 2019 are within scope of UK CT (or UK CGT). Furthermore, we welcome the option set out in paragraph 2.10 whereby, for direct disposals, it will be possible in certain circumstances to compute the loss / gain on disposal using the acquisition cost as the base cost of the property (rather than rebased cost of the asset as at April 2019). 2 For this purpose, tax-exempt investors relate to entities such as UK pension funds, qualifying overseas pension funds, sovereign wealth funds etc. We recommend that, as part of these proposals, HMT and HMRC clarify the investor types that they consider to be tax-exempt for the purpose of this new legislation. 3

4 However, the Condoc confirms that this option will not be available where an indirect disposal takes place (i.e. the gain / loss must always be computed using the rebased cost of the asset as at April 2019). We consider that there may be situations where it would also be appropriate to allow acquisition cost to be used as the base cost in the calculation of the gain arising on indirect disposals too (e.g. if the value of the asset had fallen between the acquisition date and April 2019). Paragraph 4.32 confirms that no optionality will be offered in order to create a reasonable point which ensures that compliance [is] based on reliable information. At this stage, we do not understand this rationale fully and we would be happy to discuss this further if it would be helpful. Chapter 3 Direct disposals 3. Do you agree with the basic principle that gains on direct disposals within these new rules should be computed using the same computational rules as other chargeable gains? We agree with this basic principle in terms of how the gains on direct disposals are computed. 4. Further to the specific modifications identified, are any other changes needed to recognise differences in how the tax system applies to non residents? We consider that the modifications specified in section 3 are adequate and we do not think other changes are required. In reference to paragraph 3.11, it would be useful for the UK Government to explicitly confirm that any losses brought forward as at April 2019 will be available to offset against gains arising from disposals of both residential and non-residential property going forward. 5. For businesses: Will the proposals for direct disposals mean that your company will now be required to register for UK CT? Certain of our property-owning companies within our fund structures are already registered for UK tax under the Non-Resident Landlord scheme. Further to the changes announced in the Autumn Budget 2017, returns for these companies will be computed on a CT basis with effect from April 2020 (rather than on an income tax basis as at present), and therefore these entities would need to register for UK CT in 2020 anyway. However, it is possible that in the future there may be occasions where an entity within our fund(s) has to register for UK CT solely as a result of these proposals. 6. For businesses: Will the proposals for direct disposals lead to an increase in your administrative burdens or costs? Please provide details of the expected one off and ongoing costs? Other than the action mentioned above in our response to question 5, we do not expect a significant increase in our administrative burdens or costs. 7. For individuals: Will the proposals for direct disposals mean that you will be required to pay Capital Gains Tax for the first time? Not applicable. Chapter 4 Indirect Disposals 8. Do you consider that the rules for indirect transactions are fair and effective? We have strong concerns in relation to the proposals for indirect transactions. In particular, we believe that these measures go further than the equivalent tax legislation currently in place across many other OECD countries and we have reservations about the impact that the introduction of these rules will have on inbound investment into the UK. These proposals will take effect at a time when the UK real estate industry is enduring significant turbulence already as a result of the UK exiting the EU, and further adverse developments, such as imposing an additional tax burden 4

5 on indirect investment in UK real estate, will only heighten the perception that the UK is a less attractive location to invest in at present. Further, we are aware that these proposals caused a significant amount of negative press in the financial media, particularly in Asia, and we are concerned that non-uk investors will seek to invest their money in other jurisdictions. The impact of this would be material. Overseas investment into the UK is a key driver of UK economic growth and important in helping the UK to withstand global macroeconomic pressures. The availability of inbound investment into the UK by overseas investors was a key factor in the ability of the UK to recover from the impact of the 2008 financial crisis relative to other jurisdictions. Furthermore, capital investment into the UK causes further economic benefits in the form of real estate development (e.g., housing, office space etc.), and job creation, thereby increasing the tax revenue received by HMRC. We urge HMT and HMRC to consider carefully the impact that these proposals are likely to have on the UK s ability to attract investment into the UK from overseas investors, particularly given that the proposals relating to indirect disposals are not commonplace across other OECD jurisdictions. We have a number of comments on the detailed application of these rules as they are currently proposed. We expand further on each of these points below: Impact on tax exempt investors In an investment funds context, it is very common for UK and non-uk tax-exempt investors to invest in UK real estate via offshore fund entities (e.g., Jersey Property Unit Trusts ( JPUTs )). This investment structure has historically been used as it provides the required regulatory framework for these investors as well as the same tax outcome that would arise if they were to hold the UK property asset directly. In many cases, the fund entity is treated as tax transparent for income purposes such that the funds are not subject to entity level taxation and investors are generally taxed the same as if they owned the fund s assets directly. Depending on the arrangements in place relating to the UK s Non-Resident Landlord scheme, it is also often the case that distributions of income from the JPUT to investors are paid gross of tax where the investor provides certain documentation. We are aware that a significant amount of UK real estate investment is held in this manner. We are concerned that the proposals will cause significant adverse implications to tax-exempt investors investing in JPUTs. With regard to indirect disposals, we recommend that HMT and HMRC include the necessary provisions in the new legislation to ensure that tax-exempt investors are outside the scope of this charge. In terms of direct disposals, we suggest that the new rules pro-rate the UK tax due so that it is only imposed with respect to the percentage of the disposing entity owned by entities that are not tax-exempt (for further detail, please see our comments under question 21). Double taxation As the proposals are currently drafted, there is the potential for UK tax to be applied twice on the same gain earned by non-uk investors. Under the current proposals, the non-resident property holding company will be subject to UK tax on a gain resulting from a disposal of the UK asset. If the proceeds from sale are not distributed, the investor may be subject to UK tax again when it sells its interest in the fund. As a result, the investor will be subject to UK tax on the same gain twice. We urge HMT and HMRC to make the appropriate changes needed to the rules in order to ensure that non-resident investors are subject to UK tax once only on any gain earned. It is important to note that, during a fund s investment period, it is not uncommon for gains earned from earlier disposals to be recycled into new investments. Furthermore, depending on the structure used to hold the UK real estate asset, under the current proposals there is potential for multiple entities within the investment holding structure to be charged to tax in respect of a single disposal of the UK asset. Similar to the above, we recommend that HMT and HMRC include provisions in the legislation to ensure that a gain earned on disposal is only liable to UK tax once within the investment holding structure. 5

6 The property richness test Under the property richness test, there may be inequitable results if the property holding company owns both UK and non-uk assets. If the entity satisfies the property rich test at the time the investor disposes of their interest, the investor will be subject to UK tax on the gain on the sale of the entity, albeit that the gain earned may be as a result of an increase in the value of the non-uk investments and not the UK investment. Again, this is not an equitable result. We ask that the Government considers again the detailed rules in order to ensure that only a gain earned in respect of the UK investment itself is subject to UK tax. The ownership test While we understand the purpose of this test in principle, we consider that a number of modifications and / or clarifications are needed in order for this test to operate as intended. This test, as it is currently drafted, is flawed and will not operate well in relation to CIVs, in particular. Our concerns at this stage relate to the following: o Seed investors Seed investors (i.e. investors who subscribe into a CIV at its first official close ) are critical to enabling a new fund to launch. At the outset of the fund s life, it is very likely that the initial investors may hold greater than or equal to 25% of the fund, causing them to potentially be within scope of the indirect disposal charge as outlined in the Condoc. This possibility is highly likely to cause potential investors to delay their investment in order to ensure that they are not within scope of the tax charge on indirect disposals. This test will have a significant adverse impact on the CIV industry unless provisions are drafted which remove these key investors from the charge. o Fund wind-up Similar to the seed investors point above, as a fund is winding up and investors begin to redeem their holdings, the remaining investors may end up holding 25% of more of the fund and potentially fall within the scope of the charge. This may cause investors to bring forward their redemption request such that the fund suffers from a high number of redemptions. This may cause the fund to exit investments potentially earlier than planned (possibly before the maximum return in the asset has been generated) and in a rushed manner (potentially needing to accept a lower price than it otherwise would do). Again, this is not ideal from a UK real estate investment perspective. o Related parties Paragraphs 4.19 and 4.20 discuss aggregating interests of related parties and how the ownership test will consider connected parties in order to ascertain whether the 25% ownership test is met. We understand that the intention is that passive investors who are connected to each other solely as a result of being investors in the fund are not to be treated as related parties for the purpose of this test. We urge the UK Government to confirm this intention, either in the legislation itself or published HMRC guidance so that there is no confusion on this point. o Joint venture / co-investment arrangements It is not uncommon for UK real estate to be held by a joint venture entity or two or more coinvestors. Again, such arrangements need to be considered in terms of both the related parties point mentioned above, as well as the impact that these proposals may have on the viability of these arrangements going forwards. o Compliance burden 6

7 In addition to the above, in many cases in relation to CIVs, a non-resident investor will not be in a position to ascertain whether or not they hold 25% or more of the entity (or, indeed, whether or not they have held 25% or more of the entity at any time within the last 5 years to the date of disposal) and will need the assistance of third parties (e.g., the fund administrator). This will significantly increase the compliance burden that arises under these new rules. We suggest that further consideration is given to each of the points above. In particular, we suggest that changes are made such that the test does not relate to holding 25% or more at any time during the past five years. Instead, using an average holding percentage may be preferable. We would welcome the opportunity to discuss alternative ways for this test to operate if it would be helpful. 9. Are any other conditions necessary to ensure the policy is robust in meeting the objective of taxing non residents on gains on indirect disposals? We do not consider that any other conditions are necessary, over and above what we have outlined elsewhere. 10. For businesses: Will the proposals for indirect disposals mean that your company will now be required to register for UK CT? Typically, it is the entity that directly holds the UK real estate investment that is registered for UK tax under the Non-Resident Landlord scheme and not the holding company owning the property company. Therefore, we would expect that a number of the holding companies would not be registered for UK CT currently. As a result, it is possible that these proposals will cause certain holding company entities within our fund structures to register for UK CT for the first time. 11. For businesses: Will the proposals for indirect disposals lead to an increase in your administrative burdens or costs? Please provide details of the expected one off and ongoing costs. As noted above, the ownership test will create a significant compliance burden on the party who is required to monitor the ownership percentage for each non-resident investor at all times (as is necessary under the current proposal). As such, we suggest that HMT and HMRC re-consider amending this test such that the adverse implications discussed above are not realised, and also this compliance burden is minimised insofar as possible. 12. For individuals: Will the proposals for indirect disposals mean that you will be required to pay Capital Gains Tax for the first time? Not applicable. Chapter 5 Disposals of residential property 13. Do you consider that it is right to harmonise ATED-related CGT given the changes proposed in this document? Given the UK Government s stated objective of creating a simplified, robust regime for the taxation of non-resident investors in UK immovable property, we consider that is reasonable to harmonise ATED-related CGT with the wider regime for the taxation of non-residents in respect of gains earned on UK immovable property generally. It is preferable for all parties if there is one cohesive regime rather than a fragmented framework with different sets of rules depending on the precise asset in question. 14. Are there any issues, risks, or complexities created by harmonising the ATED related CGT rules in the manner proposed, and how can these be addressed? We are not aware of any issues, risks or complexities that may be created by this proposed harmonisation. However, it is likely that other respondents may have more to offer on this 7

8 question since our recent UK real estate investments have been outside the scope of the existing ATED-related CGT rules. 15. For businesses: Will the proposals for disposals of residential property mean that your company will now be required to register for UK CT? Certain of our property-owning companies within our fund structures are already registered for UK tax under the Non-Resident Landlord scheme. Further to the changes announced in the Autumn Budget 2017, these returns will be computed on a CT basis with effect from April 2020 (rather than income tax as at present), and therefore these entities would need to register for UK CT in 2020 anyway. However, it is possible that in the future there may be occasions where an entity within our fund(s) has to register for UK CT solely as a result of these proposals. 16. For businesses: Will the proposals for disposals of residential property lead to an increase in your administrative burdens or costs? Please provide details of the expected one off and ongoing costs. We do not expect that these particular proposals will significantly increase our administrative burdens or costs. However, as detailed above, we have not had cause to operate the ATED related CGT rules or the existing NRCGT rules as they apply to UK residential property currently and so we are likely less well placed than others to respond on this point. 17. For individuals: Will the proposals for disposals of residential property mean that you will be required to pay Capital Gains Tax for the first time? Not applicable. Chapter 6 Collective Investment Schemes 18. Do you agree with the general approach to ownership of non residential property through CIVs outlined above? It is not clear to us from the comments in section 6 as to what is meant by the general approach to ownership of non-residential property through CIVs. As we mention elsewhere, we have fundamental concerns as to how the new legislation will apply to CIVs, the impact that these changes will have for inbound investment into the UK, and to the situations of tax-exempt investors investing via offshore fund entities (outlined below). 19. Will the proposals for CIVs mean that you will now be required to register for UK tax? As mentioned above, certain of our property owning companies within our fund structures are already registered for UK tax under the Non-Resident Landlord scheme. Further to the changes announced in the Autumn Budget 2017, these returns will be computed on a CT basis with effect from April 2020 (rather than income tax as at present), and therefore these entities would need to register for UK CT in 2020 anyway. However, it is possible that in the future there may be occasions where an entity within our fund(s) has to register for UK CT solely as a result of these proposals. 20. Will the proposals for CIVs lead to an increase in your administrative burdens or costs? Please provide details of the expected one off or ongoing costs. As already mentioned, the monitoring of the 25% ownership test will be burdensome, particularly for open-ended funds where investors can subscribe to and redeem from the fund at will. In addition, the computation of the property richness test at the time each UK asset is disposed, will also add a layer of complexity to the sales process (particularly in light of the fact that typically real estate fund structures are often comprised of multiple tiers of entities, and therefore it may be necessary to trace through these tiers to understand whether any tax charge arises. 8

9 One point that we consider worthy of further consideration by HMT and HMRC is a possible de minimis rule for CIVs, whereby these proposals only take effect if the CIV in question holds more than a de-minimis percentage of its investments in UK immovable property, This would allow certain CIVs with global or pan European investment portfolios to be outside the scope of these rules. 21. Are there changes needed to the rules for CIVs, particularly around exemptions, to ensure a robust system of taxing non residents on gains on disposals of interests in UK property? As mentioned above, the investment management industry represents a significant component of overseas investment in UK real estate and it is critical to ensure that the changes proposed are fit for purpose in order that they do not cause serious, adverse consequences for this pipeline of capital investment into the UK. In our view, there are several areas where further analysis is needed in relation to the new rules as they apply to CIVs. We have outlined these factors below: Definition of tax exempt investor As noted above, it is key that tax-exempt investors are not put in a worse position vis-à-vis the one they would be in if they had invested in the UK asset directly. A key issue for consideration is who or what should be included in the definition of a tax exempt investor? In some cases, it is likely very clear that it comprises of UK pension funds or SWFs. However it would be very helpful to confirm this understanding as well as clarify the position of other investor groups included in the definition, such as overseas pension funds and charities. We suggest that adopting a definition similar to the Qualifying Institutional Investor ( QII ) definition that is applied in the new Substantial Shareholding Exemption ( SSE ) legislation would work well in the CIV context. Again, to reiterate our point, we consider that it is critical that the position of tax-exempt investors who invest in UK real estate via offshore fund entities is not adversely impacted as a result of these changes, and we consider that the appropriate measures should be included as part of the new legislation to ensure that these investors can continue to invest in this way in a tax efficient manner. Impact on tax-exempt investors There are currently a number of offshore funds where the vast majority (if not all) the investors are tax-exempt. These investors will be significantly worse off under these new proposals given that the offshore fund entity will suffer tax on direct disposals, reducing the return on their investment. These investors will also be at a worse position than if they would have held the asset directly. We understand from recent discussions that HMT and HMRC are mindful of the above issue and are keen to try to ensure that these fund structures continue to operate effectively for tax-exempt investors. We therefore urge HMT and HMRC to consider allowing offshore fund entities to be exempt from these new rules such that any tax due on direct disposals is pro rated according to the percentage held by non -resident, non-tax-exempt investors at the time of disposal. Statutory Instrument 2017 /1204 We would like to draw the Government s attention to Statutory Instrument 2017 / 1204 that took effect from 1 January This secondary legislation removes certain offshore CIVs which are treated as transparent offshore funds as defined in regulation 11 of the Offshore Funds (Tax) Regulations 2009 from the charge to UK tax on chargeable gains arising. As a result, certain offshore funds will not be in scope in relation to direct disposals of UK real estate under the proposed rules. 9

10 We understand that HMT and HMRC are aware of this legislation and that it removes certain offshore funds from the proposed tax charge at the fund entity level. We therefore assume that this legislation will continue in force for the foreseeable future. However, for the sake of certainty, it would be helpful if HMT and HMRC would publicly confirm whether they plan to effect any changes of this SI so that there is no confusion or lack of clarity as to the survival of this piece of secondary legislation following the introduction of these new proposals. Jersey Property Unit Trusts We are concerned that, unless specific action is taken, these proposals will cause certain offshore structures such as JPUTs to be viewed as unfavourable by investors. If this occurs, and investors decide to redeem their interest in these vehicles in favour of a UK resident fund entity, (e.g. a property authorised investment fund ( PAIF )), this could cause liquidity pressures in the offshore fund vehicle if a significant number of redemption requests are received, potentially leading to decisions to gate funds, impose redemption fees or adjust NAVs. If assets under management in JPUTs decline over time, assuming that investors may prefer to invest in an onshore UK fund vehicle following the enactment of these proposals, a JPUT may need to be converted into a PAIF. This conversion is likely to be costly in terms of the legal and tax advisory costs required to execute the restructuring; a cost that ultimately the investors may bear. We urge HMT and HMRC to consider fully the points we have set out above and to undertake the necessary analysis to ensure that the proposals, if enacted, are fit for purpose in relation to the offshore CIV industry. 22. Are there any specific circumstances where the treatment of gains on non-residential UK property should be different to the treatment of gains on residential property in the context of a CIV? Given the UK Government s stated objective of creating a simplified, robust regime for the taxation of non-resident investors in UK immovable property, we do not consider that there are any specific circumstances where the treatment of gains on non-residential UK property should be different to the treatment of gains on residential property. 23. Do you have any further comments on the taxation of gains on non-residential UK property held through CIVs? We do not have any further comments in this regard over and above what we have discussed earlier. Chapter 7 Reporting and compliance 24. Do you foresee any difficulties with the reporting requirements for the seller? In the case of direct disposals, there should not be significant difficulties for the seller to comply with the reporting requirements as laid out in the Condoc. However, we envisage that there may be situations where an indirect disposal occurs where it is difficult for the seller to undertake the necessary analysis relating to the property rich test and the ownership test in sufficient time in order to comply with the reporting (and payment) deadlines stipulated. In order to consider this, it may be the case that the seller is relying on another party to provide certain information (e.g., whether or not they have held more than or equal to 25% of the intermediate entity at any time during the past 5 years). Thus, to report the transaction within 30 days of transaction completing may be problematic. We suggest that the new legislation allows for an extension to this deadline to be requested in reasonable circumstances, such that sellers involved in indirect disposal transactions have sufficient time to report. If this is not allowed, the risk is that sellers will opt for a conservative approach and will 10

11 report the transaction irrespective of whether or not the property rich test and the ownership test is met, which will result in over-reporting to HMRC. In addition, it is worth noting that the proposed deadline of 30 days is more stringent than the requirements for a UK resident company in terms notifying HMRC of a charge to UK tax (currently this is 3 months according to HMRC guidance). We think it would be reasonable for non-resident entities and UK resident entities to be subject to the same timeframe in terms of notifying HMRC that they are subject to a UK corporation tax charge. 25. Do you foresee any difficulties with the charge on the UK group company? In principle, it seems reasonable to pursue a recovery of unpaid tax by a non-uk resident entity against a UK group company. In a CIV context however, it is important to note that there may not be a UK related party entity or a UK representative involved. Further consideration will need to be given in this case as to which party HMRC can reasonably pursue in the event that the nonresident seller in a CIV context does not pay the tax. We suggest that the solution should consider different options depending on whether the non-resident is simply not aware that the tax is owed versus a situation where the seller deliberately withholds paying the tax to HMRC. 26. Do you agree with the proposal to use the normal CT self-assessment framework? We consider that it is reasonable to use the normal CT self-assessment framework where the transaction falls within the CT regime. 27. Will the proposed information and reporting requirements lead to an increase in your administrative burdens or costs? Please provide details of the expected one off or ongoing costs. Other than the points we have already mentioned above (i.e. undertaking the necessary analysis relating to the ownership test and the property richness test) and the act of reporting the relevant transactions where necessary, from our perspective we do not consider that the information and reporting requirements will lead to a significant increase in our administrative burdens or costs. However, for the third party advisory firms, we consider that potentially the requirement on them to report certain transactions and perform the required calculations will create an immense administration burden. This is currently exacerbated by the current lack of clarification as to which specific advisory firm in a transaction this obligation falls upon (e.g. the seller s law firm, accountancy provider, the buyer s lending bank advisors). Clarification on this point would be very helpful. 28. For third party advisors: what is the best way to ensure the proposed information and reporting requirements do not lead to an undue increase in your administrative burdens or costs? Please provide details of likely one off and ongoing costs in respect of any options or proposals. Not applicable. 29. What channels and methods should HMRC use to raise awareness of this change in law, to ensure that affected non residents will know that they are impacted? We consider that HMRC should use as many avenues as possible to raise awareness of this change in law. Examples would include alerts via relevant industry trade bodies around the world e.g., the Association of Real Estate Funds ( AREF ), the British Property Federation ( BPF ), the Alternative Investment Management Association (AIMA), European Fund and Asset Management Association (EFAMA), European Association for Investors in Non-Listed Real Estate Vehicles (INREV), Managed Funds Association ( MFA ) and the Asian Association for Investors in Non-Listed Real Estate Vehicles (ANREV) to name a few. In addition, alerts or 11

12 notifications via the Big 4 accountancy firms and Magic Circle law firms plus overseas tax authorities would be useful as well. Conclusion We appreciate the opportunity to address and comment on the issues raised by the Consultation paper and will continue to work with HMT and HMRC on any specific issues which may assist in the consideration of taxing gains made by non-residents on UK immovable property. 12