More changes for real estate

The Budget has not brought any major surprises to the property sector. Relief from rates for small businesses and pubs as well as the extension of anti-avoidance measures may impact on genuine businesses. Inheritance tax and the restriction of interest and corporate losses to be introduced in April are still a concern for the sector.

The Chancellor announced the following changes today.

Converting capital losses into trading losses

Moving a property from investment to stock is treated for tax purposes as a disposal at market value. This can result in a capital gain or capital loss. Until now an election has been available to roll the gain or loss into stock, preserving original tax cost of the asset.

From 8 March 2017, where a loss arises, this election will no longer be available. The measure is aimed at preventing the conversion of what would have been a capital loss, into a more flexible trading loss.

Although the government may have seen the hold over election as an avoidance tool, the change will also impact on genuine commercial situations and may result in significant increases in tax.

Care needs to be taken when acquiring assets to ensure the intent is clear and the tax impact of changing any intent needs to be considered.

Non resident dealers and developers of UK land

Since 5 July 2016, non-resident companies dealing and developing UK land have been subject to UK corporation tax on their profits.

The existing legislation did not generally apply to contracts which were entered into before that date. To prevent avoidance, profits recognised on disposal in accounts from 8 March 2017 will be subject to corporation tax.

Similar legislation will apply to non-resident individuals and trusts.

This change is aimed at fixing a loophole and ensuring offshore dealers and developers are treated in the same way as those resident in the UK.

Stamp Duty Land Tax

The government has delayed the proposed reduction in the filing and payment window for Stamp Duty Land Tax (SDLT) to 14 days until April 2018.

The 30 day period will be retained for another year. This is likely to benefit conveyancers rather than purchasers who have already deposited SDLT payments with their solicitors.

Business rates

The Chancellor announced support for small business and pubs as well as funding to local authorities for discretionary relief.

He also proposed more frequent rate reviews to reduce the impact of each change. Given the review of rates should be tax neutral, this will mean there are winner.

Inheritance tax

Non domiciled individuals and trusts which own UK residential property through offshore structures will be exposed to IHT from 6 April 2017.

It is welcome that the de-minimis limit for holdings in close companies has been increased from 1 per cent to 5 per cent. The question is whether the 5 per cent limit is high enough.

Non resident landlords

We still await the consultation to subject non resident companies letting properties to corporation tax rather than income tax. This was announced in the Autumn Statement.

This measure would reduce the tax rate they face by 3 per cent over the next three years but at the cost of extending complex corporation tax rules and restrictions to these businesses.

Other changes

The sector still faces a great deal of tax uncertainty, despite the proposed introduction in April of previously announced measures, such as inheritance tax, interest restrictions and loss restrictions.

For more information please get in touch with Adrian Benosiglio, or your usual RSM contact.