Embed Size (px)
Citation preview
Capital Allowances4 March 2016
What are they & why are CAs important?
• Deduction against corporation or income tax
• Available where buy, refurbish, fit-out or develop commercial property
• Cash flow benefit
• Higher Equity / Lower L to V
• Only form of tax relief against property capital expenditure
How it WorksTax Return Without Capital
AllowancesWith CapitalAllowances
Rental income £1,000,000 £1,000,000Deduct allowable costs i.e. debt finance
(£500,000) (£500,000)
Capital Allowances 0 (£500,000)Profit subject to tax £500,000 0Tax to pay (@45%) £225,000 0
Who can claim?YES
Institutions Listed Co'sPrivate Co's Overseas InvestorsPrivate Individuals Others
£58bn
NO
Pensions
£12bn
Typical Qualifying Amounts - IncreasingType Developments Acquisitions• General Fit-outs / Refurbishments 95% n/a• Hotel 65% 35%• Care Home 60% 35%• Shopping Centre 50% 35%• Office 50% 32%• Health Centre 45% 25%• Car Dealership 40% 20%• Industrial Warehouse / Retail Parks 40% 20%• Student Accommodation 15% 6%
Case Study – Office Fit-Out
Expenditure: Office Fit Out
Project Value: £800,000
Client: Legal Practice
Cash Saving: £325,000 (41%)
Case Study – Office Development
Expenditure: Office Refurbishment
Project Value: £40m
Client: Property Company
Cash Saving: £4.3m (10.8%)
Service Charges & Dilapidation Payments
• Claim if met by the service charge?
• Is the service charge taxed as income?
• Claim on receipt of a dilapidations payment?
Asset Management Budget
Landlord Tenant Dilaps Service Charge
CA Terminology – In Simple Terms
• S198 election Legal agreement
• Fixed Value Requirement Agree CA figures
• Pooling requirement Insert figures in tax return
Buying and Selling
• What do I need to do and when?
• Who should address the CAs?
• What are the claim opportunities?
• What if the seller says there are no allowances to pass across? Can buyer still claim?
Acquisitions – Entitlement to Claim
Under Offer
Sellers Position CPSEs Relevant
Interest
?Prior Claim
Contract Position
Timing of Capex
Buyer Claim
Case Study – Hotel AcquisitionExpenditure: Hotel
Value: £6.7m
Client: Private Investor
Cash Saving: £360,000 (5.4%)
Case Study – Industrial AcquisitionExpenditure: Industrial
Value: £2.3m
Client: Private Equity Investor
Cash Saving: £144k (6%)With £2 s198
Case Study – Shopping Centre AcquisitionExpenditure: Shopping Centre
Value: £23m
Client: Overseas Investor
Cash Saving: £850k (3.7%)Receivership Deal
Case Study – Office AcquisitionExpenditure: Office
Value: £5,000,000
Client: Overseas Investor
Cash Saving: £310,000 (6%)
Surely all clients claim CAs….
Accountant
Client
Lawyer
Knowledge of detailed legislationTiming; perception too lateLoss makingLow tax rateNot aware can claimNot asking the right questionsAccepting & assuming
Missed Claim Opportunities
NO
CAs
Ava
ilabl
eAc
quire
S19
8 el
ectio
n fo
r £2 Timing of Expenditure
Items Reverting to Landlord
Charity / Gov Tenants
Capital Contributions
Unclaimed Expenditure
Missed Claim OpportunitiesExisting Properties / Portfolios• Historic expenditure - time restriction?• No record of costs
Industrial Buildings Allowances• Acquire post April 2011• IBA history
Common Misconception / ErrorAssumption no allowances available even where contract states
Company Acquisitions
• Review for unclaimed historic expenditure; assumption been claimed
• Capital Contributions
• Capex reconciliations
Capital Allowances – 2016 / 2017?
• Acquisition Market
• Business Premises Renovation Allowances (BPRA)
• Authorised Contractual Scheme
• Energy Efficiency Requirements / Lease Breaks
2016 / 2017 – Acquisition Market• Still opportunities to claim where Seller claimed
• Sellers still perceive can’t utilise CAs therefore not claimed
• HOT & Contract Wording – define for CAs!
• Calculate on behalf of Seller
• Allowances still missed
2016 / 2017 – Business Premises Renovation Allowances
• 100% tax relief; Vacant / part vacant space• Ceases April 2017www.ukassistedareasmap.com• Nationwide; many investors unaware
• Cash Benefit Comparison Year 1:• £200k fit-out• CAs £140,000 x 12%*x 20% = £3,360• BPRA £200,000 x 100% x 20% = £40,000
*Aggregated writing down rate for IF & P&M
2016 / 2017 – Authorised Contractual Scheme
• Tax Transparent Fund Structure; Multiple Funds under one umbrella
• Taxed at investor level; CGT doesn’t apply to fund or non UK investors
• Value of UK ACS funds likely to exceed £250 billion by 2017*
• Pension Funds – Future Capital Allowances claims
• Complexities calculating CA values* According to survey of Financial professionals undertaken by Northern Trust
2016 / 2017 – Energy Efficiency / Lease Breaks
• Energy efficiency regulations passed 26 Mar 2015
• Properties below ‘E’ energy rating by April 2018 unmarketable
• Acquiring non-compliant occupied properties – 6 months to comply
• Penalties range from £5,000 to £150,000
• Significant Capital Allowances potential
CAs for Property Advisors• Agent Private & Overseas Investor opportunities. Raise with client
• QS / PM Consider in addition to Value Engineering
• Lawyer Ensure contracts cover CAs adequately
• Accountant Valuing Land / Buildings / CAs - HMRC Auditable
PRECISE. PROVEN. PERFORMANCE.www.moorestephens.co.uk
Property Tax ChangesVincent Wood – Tax Partner Moore StephensFriday 4 March 2016
Contents
• Property acquisitions
• Holding structures • Recent changes• ATED
• CGT• IHT• SDLT
• Offshore investors – what now?
Property acquisitions - pre-transaction work
• Asset or shares
• Due diligence• Capital allowances/entitlement/elections• VAT
• UK withholding tax on rental payments• NRL registration • UK withholding tax on interest payments
• Transfer Pricing / Advance Thin Capitalisation Agreements (ACTA)• Holding Structure
Holding structures – key considerations
• Location
• Nature of investor• Tax position of investors • Purpose
• Funding• Liquidity • Property type
Common holding structures
• Individual
• Limited partnership• Limited liability partnership• Onshore company
• Offshore company• Real estate investment trust (REIT)• Jersey property unit trust (JPUT)
Offshore Investors – offshore company
UK Property
Offshore Company
Offshore Investor
Offshore Investor
Offshore Investor
UK Property
UK Property
Property Manager
BankFinance
Offshore investors – historic tax analysis
• No CGT on sale of properties
• No IHT provided overseas investor in not UK domiciled (actual or deemed)• No local tax on distributions• No SDLT on sale of shares
• Offshore company pays UK income tax at basic rate on net rentals• Expenses include capital allowances and interest
Recent changes
w.e.fAnnual Tax on Enveloped Dwellings “ATED” 1/4/13, 1/4/15, 1/4/16
SDLT - abolition of slab system 4/12/14
Diverted Profits Tax 1/4/15
New capital gains tax regime for non-residents 6/4/15
Principal Private Residence (“PPR”) Rules changes 6/4/14, 6/4/15
Deduction of income tax at source on interest payments – recent case - Ardmore/Perrin
Nov 15
Recent changes
w.e.f
New rates of tax on dividends 6/4/16
Changes to capital to income anti-avoidance rules 6/4/16
Additional 3% SDLT on “second homes” 6/4/16
10% “wear and tear” replaced by new “replacement furniture relief”
April 2016
New IHT charges on non-doms indirectly holding UK properties
6/4/17
20% restriction on financing costs 6/4/17 – 6/4/20
Acceleration of payment date for non-resident CGT –(30 days down from 10-22 months)
6/4/19
Annual Tax on Enveloped Dwellings “ATED” -changes
• Commenced 1 April 2013• For the first 2 years - only applied to properties of £2m plus• For the first year – min £15,000, max £150,000 (>£20m)
• From 1 April 2015 applied to £1m plus• From 1 April 2016 applies to £500k plus• From 1 April 2016 – min £3,500, max £218,200 (>£20m)
• Mainly applies to companies owning UK residential properties• Reliefs e.g. for 3rd party commercial lets• Flat rate 28% CGT charge (not 20%) from 6/4/13 with rebasing
• 15% SDLT for >£500k acquisitions from 20/3/14 (from >£2m)
New Capital Gains Tax charge on non-residents
• Commenced 6 April 2015• Disposal of UK residential property by non-UK residents• No value test• Types of property• Exemptions • Scope
• Close company status • Indirect holdings
New IHT charges on non-doms indirectly holding UK residential property
• Current position• Last barrier to de-enveloping?• New IHT charge works in same way as if the property had been held direct• Who does it apply to?• What types of property?• No ATED style thresholds or reliefs• Assets other than residential property and non-UK assets.
SDLT on residential property
Band Existing residential SDLT rates
%
New additional property SDLT rates
%£0 – £125,000 0 3
£125,000 – £250,000 2 5
£250,000 – £925,000 5 8
£925,000 – £1,500,000 10 13
£1,500,000 + 12 15
SDLT on non-residential or mixed property
Non residential or mixed property
Rate%
Up to £150,000 0
£150,001 – £250,000 1
£250,001 – £500,000 3
£500,001 and over 4
Additional 3% SDLT on “second homes”
• Policy objectives• Consultation • Final policy to be issued on budget day 16.3.16• Completions on or after 1 April 2016 • How many properties at the end of transaction day?• If 1, no HR irrespective of the intended use• If 2+, need to ask if new property is replacing main residence• If yes and former main residence sold in last 18m, no HR• If no and former main residence sold in next 18m, pay HR and get refund • Otherwise pay HR
Additional 3% SDLT on “second homes”
• Married couples • Joint purchasers • Children OK provided not minors• “Main residence• 2 stage test
– main residence sold <18m prior and– “intention to use the new property as the only or main residence”
Additional 3% SDLT on “second homes”
• No SDLT on overseas properties• Overseas properties count • What counts as non residential property?• Multiple Dwellings Relief (MDR) applies • Large scale investors• Companies - always• Trusts – it depends
Examples
• H owns a main residence. He is purchasing a new main residence, but rather than selling his previous main residence he will rent it out. At the end of the day of the transaction H owns two properties and is not replacing a main residence (as he is not selling his previous main residence), so the higher rates will apply.
• Mr A marries Mr B. They each own a property (which they purchased individually before they were married and used as their respective main homes). Mr B then sells his former main home and purchases a new property to rent out.
At the end of the day of the transaction Mr A and Mr B own more than one residential property and are not replacing their main residence, so the higher rates will apply.
• T helps her son, S, purchase his first residential property. She gives him money towards a deposit and acts as a guarantor on the mortgage, but will not jointly own the property with him. At the end of the day of the transaction S will own one property, so the higher rates will not apply.
Offshore Investor – what now?
UK Residential
Property
Offshore Company
Overseas
Investor
Offshore Investors – what now?
UK Commercial
Property
Offshore Company
Offshore Investor
Offshore Investor
Offshore Investor
UK Commercial
Property
UK Commercial
Property
Property Manager
BankFinance
Clive CurdDip Prop Invest, MRICS, [email protected]: 0203 7937 154Mob: 07502 376 97346 Blandford StreetLondon, W1U 7HTwww.veritasadvisory.co.uk
Nolan MastersMRICS, ATT, BSc (Hons)[email protected]: 0203 7714 315Mob: 07502 376 20446 Blandford StreetLondon W1U 7HTwww.veritasadvisory.co.uk
David GibsonMRICS, ATT, BSc (Hons)[email protected]: 0203 7714 316Mob: 07502 376 95746 Blandford StreetLondon, W1U 7HTwww.veritasadvisory.co.uk
Vincent WoodTax [email protected]: 0207 3349 191Mob: 07885 541213150 AldersgateLondon EC1A 4ABwww.moorestephens.co.uk
