Top Banner
Developments in the Taxation of Land Transactions Rory Mullan rorymullan@15oldsquare.co.uk 020 7242 2744
37

Taxation of Trusts - Old Square Tax Chambers | Tax … · Developments in the Taxation of Land Transactions Rory Mullan rorymullan@15oldsquare.co.uk 020 7242 2744. Tax charges on

Aug 31, 2018

Download

Documents

trantram
Welcome message from author
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
  • Developments in the Taxation of Land Transactions

    Rory Mullan

    rorymullan@15oldsquare.co.uk020 7242 2744

    mailto:rorymullan@15oldsquare.co.uk

  • Tax charges on land

  • TAX CHARGES ON LANDTwo areas appear to have been targeted:

    Residential property held through companies / corporate entities for private use

    Multiple ownership of property by individuals for commercial use

  • TAX CHARGES ON LANDRecent amendments include:

    Transactions in land

    CGT rates for residential property

    Restrictions in deductions for interest

    Additional SDLT for second homes

  • TAX CHARGES ON LANDRecent amendments include: ATED related gains NRCGT SDLT for corporate purchasers ATED IHT excluded property treatment for

    companies with residential property

  • Transactions in land

  • TRANSACTIONS IN LANDSignificant amendments to the Finance Bill slipped in at committee stage set a disturbing precedent of avoiding proper consultation and scrutiny, the Law Society said today.The changes, which alter the way buy-to-let properties will be taxed, may result in many investors paying income tax rather than a capital gains tax on their investment, creating uncertainty for taxpayers.

    Law Society press release 24 August 2016

  • TRANSACTIONS IN LAND Concern is that gains by buy-to-let investors

    would be subject to income tax rather than capital gains tax

    This has not been trailed in legislation which is apparently aimed at offshore developers

  • TRANSACTIONS IN LAND Section 79 FA 2016 inserts a new Part 9A

    ITA 2007 entitled Transactions in UK Land

    Similar amendments for corporation tax purposes in section 77 FA 2016 inserting a new Part 8ZB CTA 2010

  • TRANSACTIONS IN LAND

  • TRANSACTIONS IN LAND

  • TRANSACTIONS IN LAND What does condition A mean?

    Concern that primary reason for investing in buy to let is capital gain at end

    Does this bring the gain within the charge to income tax?

  • TRANSACTIONS IN LAND But section 756 ITA 2007 operates to similar

    effect Identical condition in section 756(3)(a) ITA

    2007 Part 9A ITA 2007 duplicating and expanding

    Chapter 3, Part 13 ITA 2007 Chapter 3, Part 13 ITA 2007 repealed by section

    69(5) FA 2016

  • TRANSACTIONS IN LAND Significance of moving the provisions

    outsider of Part entitled Tax Avoidance No equivalent of section 752 ITA 2007

    stating that the chapter is to prevent the avoidance of income tax

    Page (Inspector of Taxes) v Lowther -[1983] STC 799 avoidance irrelevant

  • TRANSACTIONS IN LAND Significance of moving the provisions

    outsider of Part entitled Tax Avoidance No equivalent of section 752 ITA 2007

    stating that the chapter is to prevent the avoidance of income tax

    Page (Inspector of Taxes) v Lowther -[1983] STC 799 avoidance irrelevant

  • TRANSACTIONS IN LANDHMRC have indicated in correspondence with the NLA:HMRC considers that generally propertyinvestors that buy properties to let out togenerate property income and some yearslater sell the properties will be subject tocapital gains on their disposals rather thanbeing charged to income on the disposal.

  • TRANSACTIONS IN LAND This accords with existing practice Guidance is promised But limitations on transactions in land charges

    remain unclear given wording Query the scope of HMRCs discretion in the

    face of apparently clear words (R (Wilkinson) v IRC - [2006] STC 270)

  • TRANSACTIONS IN LAND Where provisions apply gains are treated as

    profits of a trade (section 517C ITA 2007)

    Similarly losses are treated as trading losses(section 517F ITA 2007) (loss relief?)

    Extends to property deriving its value fromland in the UK (section 517D ITA 2007)

  • TRANSACTIONS IN LAND Anti-avoidance provision in section 517K

    ITA 2007 allows counteraction

    Includes tax advantage under a DTA but onlywhere contrary to the purpose of the DTA

    Exemption where PPR otherwise available(section 517M ITA 2007)

  • TRANSACTIONS IN LAND A non-uk company carrying on a trade of

    dealing or developing land in the UK is withinthe charge to CT whether or not tradingthrough a permanent establishment (section 76FA 2016)

    HMRC are given wide powers to counteract taxadvantages obtained by non-residents dealingin or developing UK land (section 76 and 78 FA2016)

  • CGT rates for residential property

  • CGT RESIDENTIAL PROPERTY RATES FA 2016 introduces differential CGT rates

    for residential property

    18% and 28% in comparison to 10% and20% for other assets

    Applies to residential property whereversituated

  • Restrictions in interest deductions

  • INTEREST DEDUCTIONS Introduced in FA (No.2) 2015 Deductions for dwelling related loans

    limited to 75% from 2017/18 decreasing to0% for 2020-21 (section 272A ITTOIA2005)

    At same time basic rate tax relief is availableto individuals (section 274A ITTOIA 2005)and trustees (section 274B ITTOIA 2005)

  • INTEREST DEDUCTIONS No application to companies

    Effect is to increase taxable income

    Query impact of this on existing structureswithin e.g. TOAA

  • Excluded property for IHT

  • EXCLUDED PROPERTY

  • EXCLUDED PROPERTY

  • EXCLUDED PROPERTY

  • SDLT on additional dwellings

  • SDLT ON ADDITIONAL DWELLINGS Introduced by section 128 FA 2016

    Creates a new Schedule 4ZA FA 2003

    Rates on additional purchases of residentialproperty 3% higher

    Does not apply is purchase is of mixedresidential and commercial

  • SDLT ON ADDITIONAL DWELLINGS Applies where an individual purchaser has

    an interest in another residence (whereversituate) (para 3 Sch 4ZA FA 2003)

    Does not apply if replacing main dwelling Provision to reclaim additional tax if acquire

    for new main dwelling and subsequentlygrant a major interest out of old maindwelling

  • SDLT ON ADDITIONAL DWELLINGS Additional rate applies automatically where

    purchaser is not an individual even if thedwelling is not an additional one (para 4,Sch 4ZA FA 2003)

  • SDLT ON ADDITIONAL DWELLINGS Applies if spouse or civil partner owns

    another dwelling (para 9) Life tenant / beneficiary of bare trust

    treated as purchaser where purchase bytrustees (paras 10 and 11)

    If life tenant / beneficiary is a minor hisparents are treated as the purchaser (para13)

  • SDLT ON ADDITIONAL DWELLINGS Purchase by a discretionary trust will be

    caught by the charge (para 13)

    Inheritances of not more than 50% of adwelling are disregarded for 3 years (para16)

  • SDLT ON ADDITIONAL DWELLINGS Multiple dwelling purchased together only

    attract the charge if one is not subsidiaryto the other (para 5)

    Dwelling will be subsidiary if (i) within thesame grounds or building (ii) at least2/3rds of consideration relates to maindwelling

  • Rory MullanOld Square Tax Chambers

    15 Old Square

    Lincolns Inn

    London WC2A 3UE

    rorymullan@15oldsquare.co.uk

    020 7242 2744

    mailto:rorymullan@15oldsquare.co.uk