Transactions in UK land – overview
The new rules are HMRC’s answer to the thorny question as to how to prevent non-residents from shielding trading profits from UK tax using the business profits article of a particular double tax treaty. However, given the wide scope of the new rules, clarity was required.
In the run up to the Christmas break HMRC published their guidance on property development tax and the new Transactions in Land (“TiL”) legislation on the 13 December 2016 entitled;
“Profits from a trade of dealing in or developing UK land: BIM60510: Guidance”
Given no draft legislation was published in advance of the time of introduction, the guidance is important for clarifying HMRC’s position in relation to the widely drafted legislation.
There were concerns that the new TiL rules could catch buy to let investors who were seeking capital appreciation as well as rental income when purchasing properties, given the subtle changes to the rules:
The new TiL rules can apply where ‘one of the main purposes’ of acquiring the land is to realise a profit or gain from it’s disposal. In contrast, the old wording applied where this was the ‘sole or main’ object (there are other conditions, of which, if any are met the new rules will apply, but this first condition offers the widest possible scope for HMRC to apply the rules).
Within the guidance, HMRC have offered clarification that the legislation is only intended to be applied to activities which when looked at “in the round” amount to a:
- trade in land or
- a trade of developing land and ensuring that these are taxed as trading profits.
The rules should “not alter the treatment or re-characterise investment activities, except where they are part of such a wider trading activity. In particular, they do not apply to transactions such as buying or repairing a property for the purpose of earning rental income, or as an investment to generate rental income and enjoy capital appreciation”.
It is clear that the facts of each case will determine whether or not one of the main purposes was to make a trading profit from development or disposal.
It will therefore be crucial for clients who have acquired UK land with the intention of holding as an investment at the time of acquisition, that they retain appropriate contemporaneous evidence (such as business plans, board minutes) supporting this intention, as too often, external factors mean that original intentions subsequently change.
If you or your clients have any queries about transactions in UK land and the tax consequences then please do not hesitate to get in touch.