CIOT Autumn Tax Conference - 1<

CIOT AUTUMN TAX CONFERENCE – 1

Why was Nicholas Ridge CTA looking forward so eagerly to the Autumn tax conference of the Chartered Institute of Taxation?

Was it the food; the chance to saunter round the City Centre of Coventry; a break from the housework?

None of these: something much more exciting, namely the opportunity to find out how those new rules for extra Stamp Duty Land Tax and higher Capital Gains tax on Buy-to-Let property were going to work in practice.

From 1 April, Stamp Duty Land Tax went up by 3% for 2nd or further residential properties including properties for letting, and from 5 April 2016, a higher rate of Capital Gains tax, 28%, was imposed for gains by individuals on residential property, other than their main home.

A number of intriguing thoughts arise.
How do the new rules apply say in the following situations:

• you sell a plot of land with planning consent to build some houses;

• you sell a plot of land that has potential for residential development, subject however to planning consent;

• you sell a shop with a flat above, where the flat is used as a storeroom by the shopkeeper;

• you sell a shop with a flat above, where the flat is actually lived in by someone?

The answers, which Nicholas Ridge CTA found at the Tax Conference surprised him.
First, because the same rules did not apply for Stamp Duty Land Tax and for Capital Gains tax, and second, because although the Stamp Duty Land Tax position is quite clear, for Capital Gains tax the position is less than explicit.

That is despite assurances given at the Budget that rules would set out how gains should be calculated in the case of mixed use properties.

Taking them in turn, and with no guarantee that the answers apply in every case.

What happens if you sell a plot of land with planning consent to build some houses?

S116 Finance Act 2003 contains the definition of residential property for Stamp Duty Land Tax. It excludes undeveloped building land.

The Capital Gains tax treatment is hinted at in HMRC’s guidance on Capital Gains tax on UK residential property for non-residents.

Although it states that building land, provided no residential building is under construction does not count as residential property, the right to acquire a UK residential property ‘off-plan’, and properties in the process of being constructed or adapted for use as a dwelling, do count.

What happens if you sell a plot of land that has potential for residential development, subject however to planning consent?

See above. S116 Finance Act 2003 applies in this case too.

The Capital Gains tax treatment is hinted at in HMRC’s guidance on Capital Gains tax on UK residential property for non-residents. It states that building land, provided no residential building is under construction does not count as residential property.

What happens if you sell a shop with a flat above, where the flat is used as a storeroom by the shopkeeper, or where it is actually lived in by someone?

S116 Finance Act 2003 is again in point for the Stamp Duty Land Tax. It defines non-residential property as any property which does not come within the definition of residential property.

Mixed use property is thus excluded from the higher rate of Stamp Duty Land Tax. That is confirmed by HMRC’s manual too. HMRC’s manual also states that use at the effective date of the transaction overrides any past or intended future uses for the purposes of determining whether or not it is residential property.

An appropriate apportionment is probably required in the case of the Capital Gains tax treatment, depending however upon precise circumstances.

Can tax get any more exciting or interesting.