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Many were expecting some more changes to property tax as a result of this week’s budget, but as it happens things were pretty quiet in this area.
However, for the sake of completeness, it is worth a reminder of a number of changes that were already anticipated.
Non-residents holding UK property
New rules for non-UK residents trading or developing UK land were introduced in 2016. The legislation aimed to target perceived tax avoidance by what were essentially UK developers using offshore structures. The legislation took effect for disposals of UK land taking place on or after 5 July 2016; but as it often the case with new legislation amendments to that legislation were published on budget day. Broadly speaking the only change of note, is to clarify that the exclusion for disposals taking place before 5 July 2016 will not apply where the profits from that disposal are recognised in the accounts on or after 8 March 2017. The government has explained that it was never intended that contracts entered into at a very early stage of development where profits are being released over a long period of time would be excluded from the new rules. Rather, the exclusion was only intended to assist taxpayers whose disposals were taking place very shortly after 5 July 2016.
Mortgage interest relief
There was no change to the restriction on mortgage interest relief due to take effect from 6 April 2017, and the legislation relating to this will come into force as anticipated. A number of concerns were raised by industry experts when the draft legislation was announced, and it appears that many of those concerns have yet to be addressed. The legislation could see taxpayers who are making losses on their property portfolio having to pay tax, where they previously would not have done and/or effective tax rates in excess of 100%; and it is clear that careful consideration of the tax position before and after the changes is required in order to ascertain whether an individual property portfolio is sustainable in its current form.
Bringing UK non-resident companies within the scope of UK corporation tax
In the Autumn Statement, the Chancellor announced that he intended to consult on the proposal to bring UK non-resident companies within the scope of UK corporation tax. It was not clear at the time what this might look like.
As many will be aware on 6 April 2015, the government introduced a capital gains tax charge for offshore companies holding UK residential property, but fortunately it appears that, as yet, there is no intention to extend the scope of this charge to commercial property.
The consultation, which is due to commence on 20th March appears to be restricted to those companies who are currently chargeable to income tax on their UK taxable income and to non-resident capital gains on certain gains.
Whilst there were no major shocks in the property tax world there were certainly no pleasant surprises either. Many were hoping that some of the recent measures targeting buy-to-let landlords might be re-considered, and were left disappointed.
If, you or your clients are property developers or investors and would like to understand a little more about how these changes might affect you or if you have any queries on any aspect of property tax, please do get in touch.