Breaking down the Budget: Autumn Budget 2017 and the property market - - PowerPoint PPT Presentation

Property update Breaking down the Budget: Autumn Budget 2017 and the property market

6 December 2017

Agenda

• Introduction
• Economic update and Budget overview
• Tax issues arising from the Budget
• Tax planning landscape
• Questions

2

BKL in numbers

3

2015: 61 2016: 56

2017: 44

A growing and ambitious Top 50 firm of accountants and tax advisers

1980

Established in

Two offices: London and Cambridge

More than 180 staff

22

Partners

Our services

Audit and Assurance

We treat audit as a powerful diagnostic tool rather than a statutory requirement, and are a significant audit firm for the ICAEW. Management accounting, payroll and outsourcing Free up your business and enjoy expert service on demand, including access to the latest software such as Xero. Corporate finance Our team has a strong reputation, achieving great results for raising finance and selling businesses.

4

Business tax

Our tax team is one of the most highly regarded in the country and covers our key sectors in great depth. Private clients We act for many high net worth individuals, be they domiciled in the UK or overseas. We specialise in wealth preservation and are highly experienced in managing complex tax and dynamic planning.

Our sectors

Property

Property is a cornerstone of BKL. It can be time pressured and a tax minefield, and it requires calmness and clear understanding for effective decision making. Technology and digital businesses Up-to-date advice for a fast moving industry. We understand technology and its impact on the marketplace and those that succeed in this sector. Financial services We understand the complex issues which financial traders and brokers deal with daily, and the value of the right business structure for maximising returns.

5

Farms and family estates

We are building an enviable reputation for helping landowners old and new enjoy their assets and get the best from them. Hospitality We understand the stresses, risks and opportunities of the industry through many years of hands-on experience.

Property and BKL

• Largest single industry sector in our client base
• 25% of our practice are property clients
• More than 30 people in our property team
• Over 230 years of collective experience
• Who we help:
• Overseas investors; property investment companies; commercial and

residential property developers; construction industry; businesses which own or lease property; estates and landowners

• How we help:
• Property investment, development and trading; tax planning and

structures; back office support; funding; VAT; service audits and more

6

Economic environment

• Inflation climbed to 3% in September
• BoE increased interest rates in November
• RICS reports for Q3 2017
• Housing market generally – areas outside London & SE doing well,

but London slowing

• Commercial – industrial sector doing well, London & SE considered
• verpriced by the market
• Construction – private housing is key growth area, then

infrastructure, but lack of skilled workers, financial constraints and planning/regulation are key impediments

7

Autumn Budget – Property sector overview

• 1. Planning reform to unlock more land and better use existing land
• First-time buyer-led developments
• Increase density and quality of urban areas
• Encourage conversion of commercial to residential (space above shops /

permitted development rights)

• Planning permissions to be built out faster
• Developer contributions – Community Infrastructure Levy (CIL) review
• Improving process for setting and revising CIL to respond to market changes
• Flexibility to set rates that reflect uplift in land values of intended use vs existing
• Changing indexation of CIL to house price inflation rather than build costs

8

Autumn Budget – Property sector overview

• 2. Support homebuilding on land unlocked by planning reforms
• £15.3bn of new financial support for housing over next five years
• £1.1bn new Land Assembly Fund – working alongside private developers to develop strategic

sites / new settlements / urban regeneration

• £2.7bn to increase Housing Infrastructure Fund – new housing in high demand areas
• Strategic planning in the South East – Cambridge/MK/Oxford corridor
• Affordable housing investment – £2bn, and lift borrowing caps for councils
• £400m for estate regeneration
• Invest in SME builders and smaller sites:
• £630m NPIF funding for small/stalled sites
• £1.5bn Home Building Fund for SMEs
• £8bn new guarantees to support housebuilding – in particular purpose-built rented housing
• £204m of funding for innovation and skills in the construction sector
• £3.5bn capital investment for NHS estate transformation (incl. selling surplus land &

buildings)

9

Autumn Budget – Property sector overview

3. Encourage home-ownership vs property investment

• No reversal of s.24 or 3% higher rate of SDLT
• Help to buy schemes – further £10bn to the scheme
• Right to buy – £200m pilot for housing association tenants in the Midlands
• SDLT exemption for first-time buyers
• £2m fintech investment to solve problem of first-time buyers’ credit scores
• Empty homes council tax premium – local authorities can charge 100%
• Longer, more secure tenancies for those who want them

4. Level playing field for overseas and UK investors

• Tax driven changes  implication on commercial investment sector

10

2017 Budget policy decisions (£m) – Property-related sectors

11

Autumn Budget – General tax overview

• Increase in personal allowances / higher rate thresholds
• EIS – increased limits for knowledge-intensive companies
• EIS – introducing a new test re: genuine risk to capital
• Withholding tax – royalty/rights payments
• Review of Rent a Room relief
• Entrepreneurs’ Relief – dilution of holdings
• VAT – no reduction in threshold for two years from April 2018

12

Non-Resident Capital Gains Tax

Currently UK CGT generally applies to non-residents only if:

• Trade carried on through UK branch or agency
• Anti-avoidance treating gains as income
• Residential property
• Company property used by shareholders – ATED
• Other residential property – NRCGT

13

Non-Resident Capital Gains Tax

• From April 2019 proposed will apply to:
• UK residential property (already in)
• UK commercial property
• Entities which derive their value from UK property
• Consultation – may change
• Reporting obligation on advisers

14

Non-Resident Capital Gains Tax

• Entity disposals
• 75% of value derived from UK land
• Shareholder holds or held interest of more than 25% in the

entity at some point in last five years

• Gross value of assets
• Groups
• 25% includes connected persons
• Five-year period includes pre-April 2019

15

Non-Resident Capital Gains Tax

• For direct property disposals:
• Can use April 2019 value as base cost; or
• The original cost; or
• Residential only – time apportionment
• For entity disposals:
• April 2019 value basis only
• Other rules as far as possible same as CGT

16

Non-Resident Capital Gains Tax

• All non-residents within the charge
• No exemption for widely held funds
• Property funds and collectives
• Communal residential accommodation
• Double tax treaties
• ATED

17

Non-Resident Capital Gains Tax

Reporting

• As NRCGT
• Entity sales – reporting obligation on advisers

18

Other non-resident changes

• Inheritance Tax
• From April 2017 – all UK residential property

however held

• Non-resident company landlords
• Currently in income tax
• Proposal to move to corporation tax

19

Offshore envelopes – What’s left?

BVI 1 BVI 2 BVI 2 BVI 1 Sell BVI no SDLT Sell BVI – CGT / non- dom? Mr Chan Mr Chan Sell BVI no SDLT Sell BVI – CGT / non-dom? Outside Mr Chan’s estate for IHT

20

Capital Gains Tax

• From 1 January 2018 – no indexation allowance for companies
• From April 2020 – CGT payable within 30 days

21

SDLT – First-time buyers’ relief

• New rates for first-time buyers
• Up to £300,000 0%
• Above £300,000 5%
• Other buyers 2% (£125,000-£250,000) then 5%

22

SDLT – First-time buyers’ relief

• Conditions
• Purchase of a single dwelling
• Purchase price not more than £500,000
• First-time buyer intending to occupy as main residence
• Not a linked transaction
• First-time buyer
• Never previously acquired a dwelling
• Worldwide

23

SDLT – Other changes

• Exemptions from additional 3% charge if:
• Buy property from spouse
• Divorce court order prevents disposal of home
• As deputy for a child
• Legislation to stop abuse
• Can’t sell to spouse
• Must sell the whole interest in old home

24

Liquidations

• Liquidation distribution = income if:
• Individual owns at least 5% of the company
• Company is or was closed in the past two years
• Individual continues to carry on the same trade or a similar trade

within two years from the date of the distribution, directly or indirectly

• Main purpose of the winding up is avoidance of Income Tax
• HMRC guidance
• Special purpose property development companies?

25

Tax planning landscape

• Avoidance / evasion
• GAAR
• TAARs
• DOTAS
• APNs
• Strengthened penalties / criminal sanctions

particularly for offshore

2017 Budget policy re: tax avoidance/evasion

27

R&D – Property

• Tax benefit
• For each £100 spent – £230 tax deduction!
• Or cash back 33% of qualifying costs
• R&D that
• Results in a scientific or technological advance
• Clarification of an area of scientific or technological uncertainty
• Property context
• New soundproofing techniques / acoustics
• Innovative energy saving
• New, more efficient materials

Property tax – Cash basis

• For 2017/18 on:
• Cash basis receipts not more than £150,000
• Can opt to use accounts basis
• Can choose separately for:
• More than one property business
• Jointly owned property (except spouses)

29

Cash basis – Capital expenditure

• Cash basis
• No capital allowances (except cars)
• Claim upfront cost of capital items
• Accounts basis
• Commercial property – capital allowances
• Residential property – replacement of domestic items relief
• Transitional adjustments

30

Any questions?

Myfanwy Neville Partner and Head of Property myfanwy.neville@bkl.co.uk Andrew Levene Senior Property Tax Adviser andrew.levene@bkl.co.uk Jason Appel Partner jason.appel@bkl.co.uk

31