There was very little ‘new’ information announced in today’s Spring Budget relevant to the real estate industry. Although we did receive confirmation of certain anticipated measures.
Offshore Developer Rules Strengthened
2016 saw the introduction of rules which extended the scope of UK tax to non-residents trading or developing UK land. These rules were introduced to combat perceived tax avoidance by developers using offshore structures (often companies based in Jersey or Guernsey) to shelter UK development profits from tax.
The legislation took effect for disposals of UK land made on or after 5 July 2016, with an exception where the sale contract was entered into prior to that date. The amending draft legislation published today strengthens the rules by ensuring that the carve out for transactions entered into pursuant to a contract pre-dating 5 July 2016 cannot apply to any disposals where profits are recognised in accounts on or after 8 March 2017. The Government has clarified that its intention behind the carve out for pre 5 July 2016 contracts was to exclude transactions taking place a short time after that date. It was not intended or expected that contracts entered into at a very early stage of a development that result in transfers being made, and profit realised, over an extended period of time ought to be excluded from the new rules.
Bringing non-residents companies within the scope of UK corporation tax
At the time of the Autumn Statement, we commented on a proposed consultation to bring non-resident companies receiving UK taxable income within the scope of corporation tax. Today’s announcement simply states that this consultation will go ahead commencing on 20 March. We take some comfort from the stated scope of the consultation which is limited to bringing those companies that are “currently chargeable to income tax on their UK taxable income, and to non-resident capital gains tax (“CGT”) on certain gains”. Non-resident CGT currently only applies to offshore companies holding UK residential property, with an exemption for institutional investors. There does not appear to be an intention to extend the scope of UK tax to non-resident companies holding commercial property assets as investments.
Today’s announcement confirmed that from 1 April 2017 restrictions of corporate interest expense will come into force as anticipated. These rules could have a disproportionate impact on the real estate industry, compared with other sectors, given the high levels of gearing generally required for this capital intensive sector. A review of the Finance Bill provisions reveals that not all of the concerns raised by the industry have been addressed. However the exemption for “public benefit infrastructure” activities will apply to some commercial letting – a welcome development. It is also clear that the rules will only apply to corporation tax payers as of 1 April 2017. Non-resident income tax payers will only be brought within the scope of the rules following the end of the consultation referred to above.
There was no ‘good news’ in relation to any rollback of George Osborne’s SDLT and interest relief measures targeting buy-to-let landlords.
Those responsible for SDLT compliance can breathe a (small) sigh of relief as the proposal to reduce the SDLT filing deadline from 30 days to 14 days has been pushed back to April 2018 at the earliest.