Churchill Taxation
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Are we in danger of moving goal posts again? And hoping no-one notices?

May 5th, 2014 by

Most people probably haven’t taken a lot of notice of what has been happening in the ‘offshore’ arena with regards to the new proposed charges on residential property.

If you haven’t, then just a little recap here as it might affect more people than first envisaged.

The Annual Tax for Enveloped Dwellings (‘ATED’) charge is already in force. This currently applies to residential properties owned by companies (both UK and non-UK resident). The value of the property that triggers an ATED charge is currently £2m. Therefore it is of limited application.

However, the introduction of the tax has raised more than expected (which has suggested it might be a good revenue raiser) and therefore the thresholds are being reduced – the property value is £1m from April 2015 and £500k from April 2016. Therefore by April 2016 many more properties owned by companies (remember it is both UK and non-UK companies) might fall into the regime. As things stand, even if the property is exempt from the tax (by virtue of being stock in a property development company or a rental to a third party) there are still reporting requirements. This could be quite problematic for HMRC as most people do not even appreciate that this particular tax applies to UK companies!

It is therefore important that any company owning a residential property worth more than £500k keeps an eye on these rules so they are prepared when the time arrives.

Secondly, for those of you that have not looked at the consultation for charging capital gains tax on non-residents, there is a lovely example of goal post moving right before our eyes. The suggestion is that we should change the private residence relief elections system (you may know it as “flipping” which is quite popular with the MPs!) for everyone in order to accommodate these new taxing provisions.

This is a system that has been in place for many years and for the large part it has been successful and achieved what HMRC set out to do. There is no suggestion that the election system doesn’t work for UK resident individuals but as HMRC need to find a way to stop non-UK resident individuals from simply electing for their UK property to be their private residence for the purposes of the relief, they have suggested changing or scrapping the election system.

What far-reaching implications does that have for UK resident individuals who have nothing at all to do with the consultation underway?! Does this not warrant a separate consultation given the impact on UK individuals?

It is a difficult goal that HMRC have, they feel that non-UK residents should pay capital gains tax on sale of UK residential property. That’s a policy decision and if that is what the government feels should happen then so it should be. Furthermore, they need to be mindful of the EU constraints around such policies. Again, so be it. However, if one of the by-products of bringing in these new rules is to fundamentally change the system that applies to UK-residents, we are in danger of moving the goal posts a little bit too far without properly consulting on the impact to people who aren’t even the target audience.

The next few months will be interesting as this whole “offshore” debate unfolds. I will keep you posted.

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