Overseas pension funds are to be exempt from proposed tax changes to UK immovable property for non-residents of the UK.

Chancellor Philip Hammond delivered his Autumn Budget on 22 November, and the background documents to his statement, revealed a proposed change to taxing gains made by non-residents on immovable property.

“To align the UK with other countries and remove an advantage which non-residents have over UK residents, all gains on non-resident disposals of UK property will be brought within the scope of UK tax. This will apply to gains accrued on or after April 2019,” the UK government explained.

However, it added that the government intends to include targeted exemptions for institutional investors such as pension funds.

Unlike most other major jurisdictions, the UK does not currently exercise its full taxing rights where non-residents dispose of non-residential property such as offices, factories, warehouses, shops, hotels, leisure facilities, and agricultural land located in the UK.

The UK government said such a policy puts non-residents at an advantage over UK residents and drives the creation of complex offshore structures to hold property, which can facilitate avoidance.

In a consultation document on its plans, the government further explained: “Those who are exempt from all UK capital gains, or otherwise not in the scope of UK tax for reasons other than being non-resident, will continue to be exempt or out of scope[...]A relevant example is the exemption for overseas pension schemes in section 271(1A) in the Taxation of Chargeable Gains Act 1992.”

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