On 9 December 2015, HM Treasury and HMRC published draft legislation for the Finance Bill 2016. The draft legislation will be the subject of technical consultation until 3 February 2016 and the final Bill will be confirmed in the 2016 Budget, which is currently set to take place on 16 March 2016.
Some of the key tax implications for property and property businesses are discussed below.
The Autumn Statement released on 1 December 2015 announced that additional charges of SDLT will apply to acquisitions of additional residential property (for example, second homes and buy-to-let properties) with effect on and from 1 April 2016. The announcement given in the Autumn Statement was not particularly clear and HMRC has subsequently been asked to provide clarification on the changes. Draft legislation to implement the changes is expected to be published for consultation in January 2016.
The anticipated changes are that if the total chargeable consideration provided for an additional residential property (e.g. second homes and buy-to-let properties) exceeds £40,000, the entire consideration will be subject to SDLT at the following rates on a progressive basis:
- 3%: £0 - £125,000.
- 5%: over £125,000 - £250,000.
- 8%: over £250,000 - £925,000.
- 13%: over £925,000 - £1.5 million.
- 15%: over £1.5 million.
Other changes which have been announced include:-
- introducing new and extending the scope of the reliefs available for Annual Tax on Enveloped Dwellings (ATED) (ATED is an annual tax charge applicable to “high-value” UK residential property owned by certain “non-natural persons”); and
- reliefs for the 15% SDLT charge where a residential property is held for the purposes of an Equity Release Scheme, acquired for demolition into non-residential use or occupied by certain employees.
Capital Gains Tax – disposals of UK residential property by non-residents
The Finance Bill 2016 will make amendments to the capital gains tax rules on disposals of UK residential property by non-residents. The intention is to improve the fairness of the tax system by addressing an imbalance in the capital gains tax treatment between UK residents and non-residents disposing of UK residential property. Those likely to be effected and who may wish to seek tax advice on the changes include non-UK resident persons that own UK residential property, in particular:
- non-UK resident individuals
- non-UK resident trusts
- personal representatives of a deceased person who was a non-UK resident
- non-UK resident companies controlled by five or fewer persons, except where the company itself, or at least one of the controlling persons, is a ‘qualifying institutional investor’
- UK resident individuals that dispose of UK residential property in the overseas part of a split year.
Income Tax & Corporation Tax - Reform of the Wear and Tear Allowance
Wear and tear allowances for property businesses are set to be repealed. In its place there will be new provisions for the deduction for capital expenditure by landlords on replacement furniture, furnishings, appliances (including white goods)and kitchenware provided for use by a tenant of a dwelling-house. The deduction will be available in calculating profits of a property business which includes a dwelling-house. The deduction given will be for the cost of a like-for-like, or nearest modern equivalent, replacement asset, plus any costs incurred in disposing of, or less any proceeds received for, the asset being replaced.
The deduction will be available for expenditure incurred on or after 1 April 2016 for corporation tax payers and 6 April 2016 for income tax payers. This deduction will not be available for furnished holiday lettings because capital allowances will continue to be available.
Income Tax & Corporation Tax - Extension of Enterprise Zones for Capital Allowances
As part of its regeneration project, in 2012 the government re-introduced Enterprise Zones (which were originally introduced under the Local Government, Planning and Land Act 1980 but ended in 2006) in a bid to encourage economic growth through a mix of financial incentives such as enhanced capital allowances and a more relaxed planning regime. The Summer Budget 2015 invited bids for new Zones.
The 2015 Autumn Statement announced that secondary legislation will be introduced to establish 26 new Zones, ten of which will provide for enhanced capital allowances for qualifying expenditure incurred on or after 25 November 2015.
In due course, property businesses may wish to seek advice from their tax specialists on how the changes may impact upon them.
- Acting for land owners or property developers in relation to both residential and commercial development projects
- Advising on the structure and content of the legal documentation associated with the sale and acquisition of development sites
- Negotiating section 106 planning agreements
- Negotiation of option agreements and conditional planning agreements
- Plot sales / disposals
Landlord and Tenant
- Advising landlords and tenants in relation to the taking of and the grant of commercial leases of all form of commercial property
- Dealing with subleases of commercial premises
- Dealing with ancillary leasehold documentation such as licences to alter, change of use or licence to sublet
- Advising in relation to variations of leases
- Advising in relation to agreements for leases including development obligations
Real Estate Finance
- Acting for lenders or borrowers in relation to the taking and granting of security over all forms of commercial property
- Acting and advising borrowers in relation to obligations in standard security documentation issued by both corporate and individual lenders
- Perfecting a lenders security over the property at the Land Registry and Companies House
- Dealing with commercial remortgages
- Dealing with variations to existing security or substituted security
- Acting for liquidators, administrators in bankruptcy in the sale of all forms of commercial property
- Acting on and dealing with the sale of property under the Proceeds of Crime Act
- Acting for buyers of commercial property from liquidators, administrators and trustees in bankruptcy
- Acting for sellers or buyers of all forms of commercial investment property
- Advising on the due diligence to be undertaken in connection with the acquisition of investment premises
- Advising in relation to the VAT and TUPE implications arising out of an investment transaction
- Advising buyers in relation to their ongoing liabilities under the individual leases
- Advising on the property aspects arising out of the sale and purchase of businesses
- Advising on the nature and extent of property warranties included within the legal documentation
- Advising and dealing with obtaining the necessary consents for the transfer of any leasehold premises as part of the corporate transaction
Property related Pension Schemes
- Acting for pension providers and individuals in relation to property related pension scheme arrangements
- Advising pension companies in relation to the legal structure of property related schemes
- Carrying out appropriate due diligence in relation to the property aspects of a pension scheme
- Advising on and dealing with issues arising out of the transfer of assets from one pension fund to another
Sales and Acquisition of Commercial Property
- Acting for sellers or buyers in relation to the sale and acquisition of all forms of commercial property