This rather worries me

I have no idea what the rules about the taxation of foreigners dealing in UK commercial property is. So, whether Stella Creasy actually has an issue here or not I’ve no idea.

But this is still quite obviously wrong:

When a seller is a UK individual or company, they are subject to UK corporation tax on their capital gains. Yet where the seller is foreign they are not.

It’s difficult to think of any time when an individual is going to be subject to corporation tax. And if she’s getting something that simple wrong then what else is in error?

10 thoughts on “This rather worries me”

  1. For commercial property, she’s normally right – if your only contact with UK is that property, you’d not be liable to capital gain tax or corporation tax on chargeable gains.

    If it’s residential then you get a fairly draconian set of rules to make sure you’re taxed.

    If HMRC think there’s any trading or development aspect to what you’re doing then you could get income tax or corporation tax, regardless of residence.

    There is a *lot* of anti-avoidance in this area.

  2. “This has created the world’s most obvious loophole where overseas individuals and companies can repurpose property as commercial…”

    Umm… nope? Re-jigging residential property to become commercial would require some work – you can’t just change the planning permission just like that, for one thing. Doing so would immediately invoke the Transactions in Land anti-avoidance rules that would turn the offshore gain into UK-source income; it would also allow the GAAR to kick in and recategorise the commercial gain as residential – although to be honest you wouldn’t bother, as the TiL rules would raise more tax.

    I suspect that she’s not looked into this somewhat complex area of tax in enough detail.

  3. Pellinor – what about development land?

    Say a foreign company selling land with permission for residential development but no actual development?

    Is it any different for a foreign individual?

  4. The Transactions in Land rules apply to UK land, regardless of the residence of the persons involved.

    Land with permission for development is in a grey area, and it’ll depend on the exact circumstances. You wouldn’t normally class it as residential until the development starts, so the CGT shouldn’t be a problem; on the other hand, if an individual bought it intending to sell it on, and has obtained planning permission to increase the sale value, that’s going to create an income tax charge (and in that case it doesn’t matter whether the planning is residential or commercial).

    Assuming of course that HMRC notice, and apply the anti-avoidance rules. But they’re getting much hotter at looking at the land registry to identify this sort of thing.

  5. This is picking on a side issue though, isn’t it? The real question is whether or not this is, in fact, a loophole.

    It certainly looks like one.

  6. Fatty, what is the loophole? Stella Creasey is flailing around like Snippa so it is important to try to define exactly what she thinks the loophole is. Clearly many of her examples are just wrong, as shown by Pellinor and Tim

  7. If seller is UK, then:
    – if individual, subject to CGT on gain on transaction
    – if company, subject to corporation tax, but muddily because the gain will be only part of the profit for the company, so whilst subject to corporation tax, it’s a little more complex than that.

    So even the UK bit is either wrong or poorly written too.

  8. Thanks Pellinor; it was a personal query as I inherited a plot that might be developable (and I live in foreign). Will have to cough up for some advice I think!

  9. MC: the rules look at your intentions vis a vis the land, and in particular why you have it in the first place. The key question is whether you intended to make money out of it.

    If you’ve inherited it, then you don’t have it as a result of an intention to make money, you have it pretty much by accident. So if you sell it, that’s just a capital transaction subject to CGT. If you develop it, then as you’ve formed a new intention to make money out of it, that becomes trading, which is subject to income tax.

    Getting outline planning isn’t usually enough to count as development; getting detailed planning complete with plans for all the buildings might well be; putting a spade in the ground almost certainly is.

    But there’s no substitute for proper advice 🙂

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