KEY POINTS

  • Foreign owners of UK real estate to be taxed on gains from 2018. Will private funds be the answer?
  • Deadline to clean out offshore trust gains where there are UK beneficiaries.
  • New consultation on rules for advisers and other professionals to disclose client’s “offshore structures” to HMRC.

NON-RESIDENTS OWNING UK COMMERCIAL PROPERTY TO BE SUBJECT TO TAX

Having taxed non-UK residents on disposals of UK residential property, the Government (HMG) has decided to tax commercial property as well with effect from April 2019 but with anti -from the Budget.

There is to be a consultation on the details and some limited exceptions for “pension funds etc.”.

Where are we now?

If you own UK property in an entity located in a country which has a double tax treaty (DTT) which does not have a property rich clause in it (e.g. Luxembourg) then you won’t be liable to UK tax even after April 2019 until the relevant treaty is amended.

If your entity is elsewhere, then come April 2019 you will be liable to UK tax, either corporation tax or CGT.

Moving to Luxembourg now will be caught by anti-forestalling provisions.

There will be exemptions for widely held funds, so those with valuable portfolios perhaps ought to start considering REITs, PAIFS and the like, and only increases in value from April 2019 will be taxed with the usual alternative time apportionment option..

One thing is for sure, property valuers will be busy in March 2019.

GAINS WASHING

There are complex rules to tax UK taxpayers if they receive a benefit, e.g. rent-free accommodation, interest-free loan, from a non-UK resident trust.

These rules are quite mechanical and mean that depending on the order of distribution, a UK tax charge can be reduced or eliminated. The ability to do this will end on 5th April 2018.

So, having had a huge tidy up of offshore trusts for those who became deemed domiciled on 6th April 2017, it looks like a repeat of that exercise for everyone else.

CREATION OF OFFSHORE STRUCTURES

In December 2016, HMRC consulted on requiring notification of offshore structures by UK advisers etc.

Their examples were all clearly fraud related and if an adviser was involved, all clearly notifiable under the Proceeds of Crime Act and therefore the responsibility of the National Crime Agency.

We now have a new consultation document out which is

HMRC clearly felt left out.

Why are we mentioning this?

Because often we see proposals which contain what HMRC calls “collateral damage”, requiring law abiding taxpayers to supply details to HMRC for no good reason.

We will see in December.

In addition, HMRC will in future be able to go back 12 years, i.e. to 6th April 2006, when investigating offshore structures without having to prove fraud etc.

INDEXATION ALLOWANCE TO GO?

Indexation allowance is surprisingly valuable allowance for UK companies owning commercial property.

A property worth £1m now, could have been bought for £200,000 and find its base cost can be increased by the same amount again because of the indexing of that £200,000 by the increase in the Retail Prices Index (the one Gordon Brown abandoned, along with his long-time love, Prudence in favour of the more politically convenient CPI).

The proposal contradicts itself.

When indexation was dropped for individuals it went for good on the basis that the CGT rate was dropped for 18%.

This proposal suggests that for companies it will merely cease to accrue from April 2018.

Yet HMRC say that this brings companies into line with individuals. If action is required, we will let you know.

WITHHOLDING TAX ON ROYALTIES

Last year HMG introduced an override of the UK’s double tax treaties (DTT) to tax royalties which were pure income profit, i.e. not paid to a trading entity.

Having done that, HMRC have issued a consultation document on overriding all DTT royalty clauses where the royalty is paid to a low tax jurisdiction.

ONLINE BUSINESSES – JOINT LIABILITY FOR VAT

To reduce VAT fraud, HMRC are increasing their ability to collect tax from the operators of online market places where traders default.

PROPERTY BUSINESSES AND COMPANY CARS

HMRC are making mileage allowances available as an option for property businesses and for all businesses there will be no benefit in kind charge for electric vehicles from April 2018.

CERTIFICATES OF TAX DEPOSIT

They are no more.

Those who liked to invest in HMRC and hedge their tax risk, used to invest in Certificates of Tax Deposit which could be used to meet a tax liability or cashed in at interest.

No more will be sold but those currently held can be used up to 23rd November 2023.

THE SMALL PRINT

This paper is not a comprehensive review of the Budget but a selection of items relevant to our client base, who are international, have some UK connection, and often own real estate or online businesses.

This paper is for information only, is NOT intended to be relied upon and is no substitution for advice.

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