Topical Tip – Property Sector – Tax Changes

The 2016 Budget and other recent changes in UK taxation are of particular relevance to those in the Property Sector – some of the key points being:-

SDLT – Stamp Duty Land Tax

1. The rules relating to this were amended by the recent Budget so that they are now aligned with those that apply to residential property. It has been stated by the Government that SDLT will be the same or lower on non-residential property transactions in the future. However, this is only the case for purchasers of smaller commercial properties. For those that cost in excess of £1,050,000 buyers will actually pay more SDLT.

2. There will be higher rates of SDLT on additional residential property purchases. These higher rates will be charged on acquisitions that take place after 1 April 2016. Following the restriction of relief for interest deductions for individuals and partnerships investing in such property which was announced in 2015, careful consideration needs to be given about how to hold a residential property portfolio in future.

ATED – Annual Tax on Enveloped Dwellings

For UK companies owning a portfolio of residential property that had a value of above £500,000 at the later of 1 April 2012 or the date of purchase, an ATED Return in respect of the 2016/17 Tax Year will need to be filed by 30 April 2016, even if no tax is actually due.

Entrepreneurs Relief

The regulations relating to this have been amended both by the 2015 autumn announcement and the 2016 Budget. The relief has been withdrawn if a capital distribution from a company is reinvested in a similar project. The impact that this change may have can be mitigated via the use of individual separate companies for property developments where commercial reasons dictate this.

Offshore Property Developers undertaking UK Property Development – Tax Treatment

New rules relating to this were introduced with immediate effect by the recent 2016 Budget. Basically non-resident developers will pay UK taxation on profits arising from such developments, whether or not they have a “permanent establishment” in the UK. It is vital to ensure that such organisations arrange for the correct levels of charging for intragroup finance and management expertise in these circumstances.