Financing investment in UK real estate—taxation of swap arrangements
Financing investment in UK real estate—taxation of swap arrangements

The following Tax practice note provides comprehensive and up to date legal information covering:

  • Financing investment in UK real estate—taxation of swap arrangements
  • Swaps held by corporation tax payers
  • Anti-avoidance provisions for corporation tax payers
  • Swaps held by income tax payers
  • Anti-avoidance provisions for income tax payers
  • Withholding tax obligations

Swap arrangements are often entered into in connection with financing UK real estate, most commonly to hedge against interest rate fluctuations. For example, if interest on debt used to finance UK real estate is payable at a floating rate, the borrower may wish to enter into an interest rate swap under which it makes fixed rate payments and receives floating rate payments from its swap counterparty (which it uses to meet its financing liabilities). Although this Practice Note focuses mainly on interest rate swaps, swap arrangements in a property context can cover an array of subject matters, including fluctuations in foreign exchange rates, property prices and rental income.

This Practice Note summarises the key considerations in determining how investors in UK real estate are taxed in relation to their hedging swap arrangements. The tax treatment of swaps for dealers (ie traders) in UK real estate is outside the scope of this Practice Note.

A typical real estate investment involves a taxpayer acquiring property with a view to holding it for a relatively prolonged period of time and earning income from renting out the property to tenants. Where, for example, property is acquired for re-development with a view to selling it at a profit, this is likely to amount to trading (or dealing) in real estate rather than investment. For more details, see Practice Note: Dealing in

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