Property Tax update. Presented by Robert Maas of CBW Tax. March 2015

Transcription

1 Property Tax update Presented by Robert Maas of CBW Tax March 2015

2 Property Taxes 2014/15 Bloomsbury Professional Introduction Rents Premiums Relief for interest payable Investment or dealing? Tax aspects of property dealing companies Tax aspects of property investment companies. Problems of development

3 Refurbishments Allowances for capital expenditure Tax on chargeable gains Business occupation of property Private residences Artificial transactions in land Use of overseas companies to acquire UK properties

4 VAT on residential property VAT on commercial property Inheritance Tax Stamp Duty Land Tax Annual Tax on Enveloped Dwellings The Council Tax Landfill Tax Miscellaneous

5 Basic principles No special tax regime Number of taxes to consider The requirements can conflict Basic questions - Investment or dealing - Best structure - What is the client trying to achieve?

6 Investment or dealing? What is the distinction? It is not always readily apparent The basic tests to apply Decided cases

7 Rental Income UK property business Profit calculated on trading income principles - Furnished lettings - Furnished holiday lettings Losses - Income tax - Corporation tax

8 Lease premiums Income tax charge on leases of under 50 years Obligations to carry out works Premium for an assignment

9 Reverse Premiums Taxable as income if - Paid as an inducement - Tenant becomes entitled to an interest in land - Payment is by grantor of lease or a connected person - Spread under UITF 12 Probably non-taxable if above conditions not met But may be a capital gain

10 Overseas properties Separate overseas property business No deduction for travel Interest is deductible in the normal way EEA furnished holiday lettings

11 Non-resident landlords Tenant or agent must deduct tax Unless landlord opts into self-assessment Tax deduction is on income less allowable expenses paid by the tenant/agent Why opt? Tenant/agent must account for tax quarterly Return by agents

12 Choosing the structure Effect of reliefs on corporation tax Individual pays only 18% or 28% CGT Is a company a sensible vehicle? Not normally for investment properties But may be for trading ventures Appropriations to and from trading stock

13 Capital Allowances Plant and machinery % annual investment allowance 100% first year allowance on certain expenditure 18% pa writing down allowance - Except for integral features which is 8%

14 Capital Allowances Plant and machinery - 2 What is machinery? What is plant? Yarmouth v France J Lyons & Co v AG Cole Brothers v Phillips CIR v Scottish & Newcastle Hunt v Henry Quick Ltd J D Wetherspoon v HMRC Other cases

15 Interest rate changes Plant and machinery - 3 Lessons to be drawn - Functional test is key - Specially designed is irrelevant - The first-tier tribunal is sole arbiter of facts - If you don t ask you won t get (probably) - Don t look at what is being bought; look at why it is being bought

16 Capital Allowances Plant and machinery - 4 Ought related items to be looked at individually or as a whole? Plant in buildings, CAA 2002, ss 21-23

17 Capital Allowances Plant and machinery - 5 On acquisition of a building, remember you are buying the plant in it - But allowances are restricted to vendor s cost - Plus possibly cost of any items on which he did not claim allowances Joint election as to how much of purchase price is plant Anti-avoidance rule

18 Capital Allowances Plant and machinery - 6 Cannot claim for fixtures in a dwelling house Purchaser and vendor cannot normally claim under different heads Landlord s fixtures Sale and leasebacks Landlord can pass right to allowances to tenant who pays a premium

19 Capital Gains Tax - 1 Only deductible items are - Cost - Incidental costs of acquisition - Enhancement expenditure - Expenditure on defending title - Disposal costs Interest is not deductible

20 Capital Gains Tax - 2 Date of disposal is contract date (unless it is conditional) What is a conditional contract? Use of options Marren v Ingles - Do you want it to apply?

21 Capital Gains Tax - 3 The grant of a lease is a part disposal - So need to value the reversion A lease of under 50 years is a wasting asset The part of a premium charged to income tax is excluded from the consideration

22 Capital Gains Tax Entrepreneur s Relief Must have a disposal of a business - Or of assets of a ceased business - Or shares in a trading company Must be individual s family company and he must be a director or employee No relief for a discretionary trust Limited relief for an IIP trust Assets held outside company or partnership

23 Refurbishments Much of the expenditure by a tenant is likely to be revenue Capital expenditure will normally be enhancement expenditure Has there been an appropriation to trading? Can be better to give tenant a rent free period and let him incur the expenditure

24 Use of Overseas Structures - 1 An overseas company is liable to corporation tax if it is either - Resident in the UK - Trading in the UK Residence = central control and management There are a large number of anti-avoidance provisions

25 Use of Overseas Structures - 2 There is little scope for avoidance by a person who is resident and domiciled in the UK Can achieve a deferral by excluding everyone you might want to benefit! There is scope for CGT avoidance where settlor and beneficiaries are non-uk domiciled

26 Value Added Tax - 1 There are two distinct VAT regimes 1. Residential and relevant charitable buildings 2. Commercial property and land

27 Value Added Tax - 2 Residential Zero-rating applies on - The first grant by a person constructing a building of a major interest in it if it is either - Designed as a dwelling, or - Intended for use solely for a relevant residential or relevant charitable purpose - The grant of a major interest by a person converting a non-residential building into a dwelling

28 Value Added Tax - 3 Residential (cont d) - The supply in the course of construction of a dwelling of building services - Supplies of building services to a housing association in the course of the conversion of a nonresidential building - The supply of building materials to a person to whom the builder is also supplying the above and is incorporating them in the building

29 Value Added Tax - 4 Residential (cont d) Meaning of residential First receipt of rent can trigger the disposal What is a building designed as a dwelling? Construction of a building does not include the conversion of an existing building Must be entitled to occupy throughout the year

30 Value Added Tax - 5 Residential (cont d) If building is intended for use for a relevant residential or charitable purpose the builder must get a certificate from the proposed occupier Change of use within 10 years triggers a deemed taxable disposal Other disposals of residential land are exempt Rents are always exempt or virtually always

31 Value Added Tax - 6 Commercial The grant of an interest in land is normally exempt Other than - The disposal of a new non-residential building - Certain leisure-related items - Where the option to tax is exercised

32 Value Added Tax - 7 Commercial (cont d) What is a new building? The grant of a lease is normally exempt Land sales are exempt (subject to the option to tax) Building and civil engineering work is VAT-able Demolition is normally VAT-able

33 Value Added Tax - 8 The option to tax Election is building by building Applies to all supplies in relation to the building by the optor or a relevant associate - And may extend to adjoining buildings Cannot apply to a part of the building intended for residential or relevant charitable purposes (other than as an office)

34 Value Added Tax - 9 The option to tax (cont d) Anti-avoidance rule re exempt occupation Option is irrevocable - Except in limited circumstances Takes effect from day it is notified May need consent of HMRC Must notify on Form VAT 1614A

35 Value Added Tax - 10 The option to tax (cont d) Tenant cannot stop landlord electing - Unless lease prevents this If the building is demolished a fresh election is needed A purchaser is not bound by his vendor s election One group company is not bound by an election by another (unless they are a VAT group)

36 Value Added Tax - 11 The option to tax (cont d) Why elect? - To recover input tax suffered Input tax incurred before the election is not normally recoverable - Unless there have been no exempt supplies - Watch the normal 6 month time limit The option can extend to goodwill and fixtures

37 Value Added Tax - 12 Special problems Reverse surrenders Reverse premiums Rent free periods Date of the supply VAT and SDLT Temporary licences Change of mind The capital goods scheme

38 Value Added Tax - 13 Special problems (cont d) Partial exemption Goods owned at deregistration Transfer of a going concern - Purchaser must opt to tax before the disposal Service charges Variations of leases Payments under planning agreements Joint ownership

39 Value Added Tax - 14 Special problems (cont d) Options Listed buildings Payment of another party s costs Payments by guarantors Apportionments on completion Input tax incurred by company on domestic accommodation for a director

40 Robert Maas Tax Consultant & Tax Expert Robert is a giant in the tax world. He is widely regarded as one of the leading tax practitioners in the UK and is a long-standing tax commentator. He has authored extensively on tax and is always a draw card speaker. The announcement that Robert had won the 2013 Lifetime Achievement Award was met with a standing ovation. Robert is well-loved and much respected with good reason. Amongst other roles, Robert is a member of the Technical Committee of the ICAEW Tax Faculty. t: +44 (0) robert.maas@cbw.co.uk

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