UK property continues to be a popular investment for individuals and businesses looking to grow or diversify their asset portfolios. However, with a raft of changes to property tax in recent years, it is vital to understand your obligations and any opportunities to streamline your affairs. Real Estate Tax considerations should be made on buying, holding and selling, as well as on gifting/transferring and making disclosures.
Pure Tax has significant experience in advising clients on efficient structures to buy, hold and sell high-value UK real estate and the associated property tax consequences. Advice can also be provided to real estate investors on restructuring their existing real estate portfolios in order to help them navigate the impact of recent and any imminent property tax changes.
Residential property
Buying, holding and selling UK residential property can be an attractive investment opportunity, provided transactions are structured appropriately. Staying up to date with your tax reporting obligations is also of paramount importance.
Pure Tax has extensive experience in advising clients on all aspects of UK residential property tax. We work with many external partners to assist clients with funding arrangements, holding structures and compliance matters. Our advisory services include the following areas:
The Annual Tax on Enveloped Dwellings (“ATED”), which applies to properties worth more than £500,000 held in a corporate or certain other types of structure;
Considering the impact of mortgage interest restrictions for Buy-to-Let landlords, which reduced the allowable deductions against rental income;
Structuring property portfolios, tailored depending on whether they are held for income generation, capital growth or wealth preservation;
The Inheritance Tax position of property portfolios and Furnished Holiday Lets;
Capital Gains Tax on the sale of property, including changes to exemptions for main residences and let properties.
Commercial property
Commercial Real Estate has traditionally been a sound investment offering economies of scale, additional cash flow and the potential of significant realisation of value at disposal. Many businesses also choose to operate from property owned directly.
Pure Tax work with real estate developers and landlords offering advice that not only considers the best holding structure for a new commercial real estate portfolio, but we will also review the position if there is an existing portfolio. We can work with fiduciary specialists to incorporate appropriate structures, either in the UK or overseas.
We are also able to advise individuals and sole traders operating their businesses from commercial property they own personally, including any personal tax implications and the impact on Entrepreneurs’ Relief.
Non-resident investors and trustees
Individuals, companies and trusts resident outside the UK continue to invest in the UK property market. With extensive changes introduced over the years, it is important to keep up to date with those developments and obligations.
With the introduction of the Common Reporting Standard (“CRS”), under which tax authorities share information across jurisdictions, it is vital to understand your obligations as a non-resident property owner. HM Revenue & Customs (“HMRC”), the UK tax authority, has a range of tools at their disposal to identify non-compliance by non-resident property investors, so reviewing your property interests is of paramount importance.
The team at Pure Tax are experts in the UK taxation of non-resident individuals, with the range of our services including:
The Annual Tax on Enveloped Dwellings (“ATED”), which applies to properties worth more than £500,000 held in corporates and certain other structures;
Extensive and complex changes to the Inheritance Tax (“IHT”) position of UK residential property from 6 April 2017, which bring interests held indirectly within the scope of UK tax;
Non-resident Capital Gains Tax (“NRCGT”) and its extension, from 6 April 2019, to commercial property held by non-UK residents, both directly or indirectly;
Changes to the Non-Resident Landlord Scheme, with non-UK companies being brought within the scope of UK Corporation Tax (rather than the Income Tax regime previously) with effect from 1 April 2020;
Individuals’, directors’ and trustees’ UK compliance obligations in respect of their property interests, and assistance them in making the appropriate filings and disclosures to HMRC.
Let Property Campaign
The Let Property Campaign (LPC) gives you an opportunity to bring your tax affairs up to date if you are an individual who has been letting out property, whether in the UK or abroad (including your holiday home). The Let Property Campaign allows you or your client to make a voluntary disclosure to secure the lowest penalties (if any).
Provided a full and complete LPC disclosure is made, there is no need to meet with HMRC face-to-face. This will be a great relief to most taxpayers/landlords, particularly those who never set out to evade tax and are anxious to put things right and get on the correct footing going forwards.
The LPC is also designed to allow other tax irregularities to be “wrapped up” together, within the same disclosure, for example sundry interest earned on the rental income deposits as well as any disposals of properties concerned which means Capital Gains Tax.
It is important to remember that just because you may not have made a profit by letting out your property, you should still be declaring the income (and all appropriate expenses) to HMRC.
In order to make an LPC disclosure, it is necessary to apply to register under the Let Property Campaign rules. Pending acceptance into the process, HMRC typically allow the taxpayer 90 days to make a full and complete property tax disclosure and pay what is owed.
HMRC do, however, reserve the right to refuse entry into the process, in which case they may open a compliance check or, in more serious cases, a tax fraud investigation. This is becoming more common as HMRC obtain more information from third party sources and is clearly best avoided, if possible. For example, one should avoid encouraging HMRC to review the funding/sourcing of the property or portfolio, as with the passage of time it may not be as easy to demonstrate how savings and known income was used.
At Pure Tax our Tax Investigation & Disclosure specialists are industry recognised and have dealt with hundreds of contentious situations with HMRC over the years. We are adept at managing interactions with the tax authorities to ensure that the investigation and disclosure processes run smoothly and that your interests are best protected.
