The post Brexit message from Government is that the UK is “open for business”. However, new rules on the taxation of profits from UK property activities could be worrying for overseas investors and pension schemes not expecting to pay tax on their capital gains. By introducing these changes the Government could be seen as sending the wrong message: the new rules are a clear disincentive to overseas investors.
This year’s Budget saw an unprecedented attack on property developers using offshore structures. This was designed to ensure a level playing field between UK developers and those based in offshore jurisdictions.
The Government has now published more details of the proposed changes which apply to disposals on or after 5 July 2016, although there are also rules to catch certain arrangements made after the Budget on March 2016.
As expected there are rules to ensure the property developers using offshore structures are taxed in the same way as UK-based developers. Specifically there are rules to counter the use of double tax treaties, fragmentation (where profits are split between related parties) and enveloping (selling a company which owns property) to mitigate UK tax.
Although HMRC says that property developers already paying full UK tax should not be affected, the method the new rules have been introduced include the replacement of the old 'transactions in land' rules with new much broader approach.
Anyone disposing of land after 5 July 2016 and expecting to pay tax on a capital gain or no tax at all will need to be alert to the increased breadth of these rules which could potentially catch disposals by anyone acquiring or developing UK land and buildings with a profit motive.
This will be unwelcome news for not only overseas investors but also pension schemes and charities who could see previously tax free capital gains being bought into tax under the new rules leading to unexpected and unwelcome tax liabilities.
Moore Stephens can assist you in working through the changes in regulation. Please contact Vincent Wood
to discuss how these changes could affect you.