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Budget surprise : Chancellor delivers another tax change with potentially major implications for UK Commercial Real Estate

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The proposed changes to Capital Gains Tax may have far-reaching consequences for the UK property industry.

With changes to first time buyer stamp duty grabbing the headlines as “Box Office Phil” actually lived up to his ironic nickname, a tax change with potentially significant implications for the UK commercial real estate market has slipped under the radar somewhat. But sifting through the details after the speech revealed plans to end the exemption from capital gains tax (CGT) for foreign buyers of UK commercial real estate, bringing it in line with the policy for residential assets which was changed in 2013.

The impetus behind the move is fairly clear – it should create a level playing field between foreign and domestic investors, and with foreign capital pouring into UK commercial real estate it would, in theory, create additional tax revenues from a politically uncontentious source. A number of high profile transactions to Asian buyers in 2017 including purchases of the Walkie Talkie and Cheesegrater office buildings in London for a total of around GBP2.5 billion have focused media and public attention on foreign ownership of UK real estate assets. If anything given the recent negative media on tax avoidance and off-shore holdings, it is surprising that the chancellor didn’t draw more attention to these reforms in his speech. But whilst there are undoubtedly political benefits to introducing such reforms as we will discuss in this paper, the structure of the UK property fund industry and dependence upon global capital to support the market may make implementation rather more complex than initially thought, which a lengthy consultation period is likely to unearth.

Source : UBS AG

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