A new Luxembourg-UK double tax treaty (DTT) will be coming into effect from 1 January 2024 (for taxes withheld at source) and 6 April 2024 (for UK income and capital gains taxes). This will align the treaty with other UK treaties in terms of not providing an exemption from the UK Non-Resident Capital Gains Tax (NRCGT) rules for indirect disposals of UK property. The changes mean that Luxembourg investors disposing of interests in UK property rich companies (either directly or indirectly via certain fund structures) will fall within the NRCGT regime. No grandfathering provisions will apply.
When introducing the NRCGT rules there was included a clause that structures, established after the announcement of the rules, with a main purpose of obtaining a tax advantage via a double tax treaty would not benefit from such an advantage, and it was also flagged clearly by HM Treasury that they would be looking to amend the treaty. Accordingly the main impact of this change will be on arrangements entered into before 22 November 2017.
The treaty also includes a protocol extending the benefits of the treaty to Luxembourg funds and other collective investment vehicles which are either UCITS or for which at least 75% of the investors are equivalent beneficiaries (UK or Luxembourg residents, or beneficiaries of a double tax treaty providing equivalent benefits).
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