Company capital gains: more chargeable gains on the horizon

In the Autumn Budget 2017, the Government announced that indexation allowance for companies disposing of chargeable assets would be frozen from 1 January 2018. A proposal was also put forward to tax non-resident companies on disposals of UK commercial property.

Freezing of indexation allowance
The indexation allowance currently available to companies reduces the gain subject to corporation tax but cannot create, or increase, a capital loss. The disposal of chargeable assets up to 31 December 2017 will continue to attract a full indexation allowance. However, disposals of chargeable assets from 1 January 2018 will only attract an indexation allowance for periods up to December 2017, with no further relief for inflationary increases.

The freezing of the indexation allowance will lead to companies paying more corporation tax on the disposal of their chargeable assets. All companies holding capital assets and shares or securities in share pools will be affected by the change in the rules.

Non-resident landlords holding UK commercial property
Currently, the UK does not tax non-resident companies on disposals of UK commercial property. However, the Government now proposes to extend existing rules, which tax disposals of residential property, to include commercial property.

Under the proposals, UK commercial property disposed of by a non-resident company from 1 April 2019 will be subject to corporation tax, although only gains attributable to changes in value from 1 April 2019 will be taxable. If rebasing property values at April 2019 produces an unfair result an election may be made to disregard the rebasing.

A consultation document was published on 22 November 2017 by the Government and will be closed for comments on 16 February 2018. The proposals may, therefore, change. However, we would advise all non-resident companies holding UK commercial property to assess the potential tax cost of the proposed changes and the options available to them.

VAT and property transactions
The VAT rules concerning land and property is complex under normal circumstances. These rules are further complicated with the anti-avoidance provisions that are predominantly targeted at partly exempt businesses in the financial services sector. Therefore, property transactions by insurance businesses can become an even greater mine field.

Due to the large values involved in property transactions, such as the sale of property, letting and refurbishments, getting the VAT treatment wrong can lead an to significant VAT issues, as well as penalties (of up to 30% of the VAT) imposed by HMRC. Accordingly, considering the VAT treatment of property transactions in advance will enable insurance businesses to both plan the structure of transactions in a VAT-efficient manner and to also avoid the VAT pitfalls.  

Moore Stephens can help
Our dedicated Business Tax & VAT team of industry experts provide advice to underwriters, P&I clubs and other mutuals, outsourcers, Lloyd’s and multinational insurers and brokers. We advise clients on their statutory requirements and the most efficient ways of fulfilling these obligations, as well as preparing their corporate tax returns. We also advise many organisations on the most tax-efficient ways to structure their affairs and ensure that all available reliefs are utilised. With tax legislation being an area of regular change, our specialist team also helps clients thrive in a changing world and stay abreast of the latest opportunities, as well as any potential pitfalls.

We pride ourselves on the breadth and depth of our insurance expertise, offering specialist and tailored support to industry participants and regulators, locally and internationally.

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