The measure
The government has concerns that certain property developers use offshore structures to avoid UK tax on their trading profits from developing property in the UK. Legislation will be introduced to Finance Bill 2016 at Report Stage to extend the corporation tax charge to any non-resident who trades in or develops UK land with a view to sale. The charge will apply to existing developments in the course of construction and will, it seems, tax the whole of the profit derived from the UK development activity to UK corporation tax.
Who will be affected?
Property traders and developers making use of offshore property holding structures.
When?
The new charge will apply to disposals that occur on or after the date that the legislation is introduced at Report Stage, expected to be June 2016. Targeted anti-avoidance rules will come into effect from today to prevent arrangements to avoid the charge.
Our view
The Government has acted decisively to bring offshore property developers within the UK tax charge.
They have protected the extended corporate tax charge by immediately amending the Tax Agreements with Jersey, Guernsey and the Isle of Man to ensure that companies based in those jurisdictions can no longer claim protection from UK tax under those Agreements. In addition, if developers take steps to mitigate the charge between today and the introduction of the legislation, for example by seeking to rebase the assets by transferring them to a related company, then the rules will counteract such actions and ensure the tax charge is on the whole of the economic gain from the development activity. The charge could also be applied to a sale of shares in the property company owning the development in certain circumstances.
The new charge will apply to the profits of both commercial and residential development. For affected residential developers, in addition to a softening market due to external factors and significant increases in the SDLT rates payable by their customers, they will now have to factor in corporation tax on their projected profits.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
