Autumn Budget 2017—Real estate taxes

This analysis is part of the Lexis®PSL Tax team’s summary of the Autumn Budget 2017.  Some of the links require a LexisPSL subscription. If you are not a subscriber, you can take a free trial here.

Corporation tax on non-UK resident companies’ UK property income and gains

Following an announcement at Autumn Statement 2016 and a consultation at Spring Budget 2017, the government has confirmed that it intends to introduce corporation tax on non-UK resident companies’ UK property income and on their gains from disposals of UK residential property, replacing the current income tax and CGT charges. The changes will take effect from April 2020. The government plans to publish draft legislation for consultation in summer 2018, and given the proposed implementation date, the final legislation may be intended for Finance Act 2020.

This measure follows the introduction in 2016 of a corporation tax charge on companies that deal in or develop UK land (see Practice Note: Profits from trading in and developing UK land (transactions in UK land)). It is a further erosion of the principle that non-UK resident companies do not pay corporation tax unless they trade in the UK though a UK permanent establishment (see Practice Note: When does the UK tax non-resident companies?).

For background information on the previous consultation, see News Analysis: Bringing non-resident companies with income and gains from UK property into the corporation tax net.

See: Autumn Budget 2017 (para 3.32) and OOTLAR (para 2.32 in the pdf version).

Taxing gains made by non-residents on immovable property

Legislation will be included in FB 2019 taxing gains made by non-residents on immovable property from April 2019. This measure will extend existing rules that apply only to residential property: CGT on ATED–related gains and Non-resident CGT (NRCGT) (see Practice Notes: Capital gains tax charge on ATED-related gains and Non-resident CGT—summary).

The new rules will create a single regime for disposals of interests in both residential and non-residential property, introducing a new charge for gains on disposals of commercial property and extending the rules for residential property to indirect sales and disposals made by widely-held companies (ie companies that are not close companies). For indirect disposals there will be a reporting requirement on certain UK third-party advisors who have sufficient knowledge of the transaction. This will be in addition to the obligation on the person making the disposal.

The new rules will also be protected by a broad targeted anti-avoidance rule, that is likely to capture all aspects of the indirect charge, and any provisions in the new direct charge that are not subject to existing anti-avoidance provisions for chargeable gains.

The government has published a consultation on the changes which runs until 16 February 2018. In recognition of the fact that there is significant investment by non-residents in UK commercial property through collective investment vehicles, the government is inviting comments from institutional investors on the measures. It intends to include a targeted exemption for institutional investors such as pension funds.

The changes will have effect on and after 1 April 2019 for companies, and on and after 6 April 2019 for those subject to CGT. An anti-forestalling rule will apply to certain arrangements entered into on or after 22 November 2017, in order to counteract arrangements that seek to avoid the new charge by exploiting provisions in certain double tax treaties.

See: Autumn Budget 2017 (para 3.30), OOTLAR (para 2.35), Consultation document: Taxing gains made by non-residents on UK immovable property and Technical Note: Taxing gains made by non-residents on UK immovable property.

SDLT– higher rates

The higher 3% rates of SDLT (see Practice Note: 3 per cent higher rates of SDLT on additional residential properties) have applied to acquisitions of residential property by non-natural persons and to certain acquisitions of additional residential property by individuals since 1 April 2016. To improve the operation of the regime FB 2018 will include provisions that grant relief from the higher 3% rates of SDLT where:

  • a purchaser adds to their interest in their main residence, for example, by way of a lease extension, subject to certain restrictions (new paragraph 7A of schedule 4ZA to the Finance Act 2003 (FA 2003))
  • a court order issued on divorce or dissolution of a civil partnership prevents someone from disposing of their interest in a main residence (FA 2003, Sch 4ZA, new para 9B)
  • an individual buys property from their spouse or civil partner ( FA 2003, Sch 4ZA, new para 9A)
  • a person buys property in a child’s name or on a child’s behalf in their capacity as trustee for that child pursuant to a relevant court appointment ( FA 2003, Sch 4ZA, new para 12(1A))

To prevent avoidance of the higher 3% rates, FB 2018 will also require a purchaser to dispose of the whole of their former main residence to a person who is not their spouse to benefit from the exemption for replacing a main residence (FA 2003, Sch 4ZA, new para 3(ba)).

These measures have immediate effect (22 November 2017), subject to transitional provisions.

See: Autumn Budget 2017 (para 3.29), OOTLAR (para 1.42), and TIIN, draft clause and draft explanatory notes.

SDLT – relief for first time buyers

The government has announced that, for all transactions with an effective date on or after 22 November 2017, there will be relief from SDLT for first-time buyers of residential property for £500,000 or less. If the consideration for the property is £300,000 or less, no SDLT is payable. If the consideration is over £300,000 and not in excess of £500,000, SDLT will be charged at 5% on the amount above £300,000.

In order for the relief to apply, the conditions that must be satisfied are as follows:

  • there must be a purchase of a major interest (ie excluding leases with less than 21 years to run) in a single dwelling
  • the purchasers (or all of them if more than one) must be first-time buyers who (all) intend to occupy the property as their only or main residence
  • the purchaser(s) must be an individual
  • the transaction may not be linked with another land transaction, unless that other transaction consists of the garden or grounds of the dwelling or an interest, or right over, land which benefits the dwelling or garden/grounds

The relief does not apply in the case of higher rates transactions or where the effect of transactions being linked results in the aggregate consideration breaching the £500,000 threshold (in which case previously claimed relief will be withdrawn). The relevant consideration for the purposes of the relief does not include rent payable under a lease.

The relief is available under a shared ownership lease or shared ownership trust if the purchaser opts to pay SDLT up front on the full market value. There are also provisions which apply the relief where the property is purchased using an alternative finance arrangement.

There is a calculator available on HMRC’s website which will calculate this relief (SDLT calculator for first-time buyers). Like other SDLT reliefs, this relief must be claimed on the land transaction return.

See: OOTLAR (para 1.41), draft legislation and explanatory notes and Guidance Note: relief for first time buyers.

SDLT– filing and payment process

The government has delayed the reduction in the SDLT filing and payment window (from 30 days to 14 days) to FB 2019 for land transactions with an effective date on and after 1 March 2019. The government is proposing to amend the SDLT return to make compliance with the new time limit easier. The reduction in the filing and payment window was originally announced in Autumn Statement 2015 when the government consulted on the proposals.

See: OOTLAR (para 2.63).

Payment window for CGT

The government has confirmed its intention, announced at Autumn Statement 2015, to reduce the payment window for CGT charged on residential property (other than where it is not chargeable due to principal private residence relief) to within 30 days of completion of the disposal, but has deferred the introduction of the measure to April 2020 (from April 2019 as originally announced). Legislation had been expected in Finance Bill 2017.

See: Autumn Budget 2017 (para 3.19) and OOTLAR (para 2.34).

SDLT– financial institutions bail-in exemption

FB 2019 will contain provisions that exempt certain transfers of property from failing financial institutions to public bodies and creditors from SDLT. The exemption will be limited to the temporary transfer of land to a bridge entity under the UK special resolution regime for managing failing financial institutions. Similar provisions will apply for stamp duty and SDRT.

See: Autumn Budget 2017 (para 3.38) and OOTLAR (para 2.64).

ATED–2018 to 2019 annual chargeable amounts

The annual amounts for the ATED will be increased by 3% from 1 April 2018.

ATED applies to high-value UK residential property owned on, or acquired after 1 April 2013, by non-natural persons (see Practice Note: Annual tax on enveloped dwellings (ATED)—the basics). The current annual chargeable amounts range from £3,500 to £220,350 (depending on the value of the property). The amounts that will apply from 1 April 2018 range from £3,600 to £226,950.

See: OOTLAR (para 2.62) and TIIN: ATED: annual chargeable amounts.

Further Guidance

  7. VAT

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Filed Under: Budget

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