Posts Tagged ‘capital gains tax’

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Duck

September 16, 2014

Property again.  Was it the duck houses that irrevocably tainted the relationship between our government and the governed in the area of property policy?  Anyway, duck houses are the first things that come to my mind in connection with the idea we should reduce the administrative burden of the ATED – the annual tax on enveloped dwellings.

Because ATED is a rich buggers’ tax: it’s the “not-quite-a-Mansion-Tax” tax on houses that are owned by some kind of corporate entity to avoid Stamp Duty Land Tax.  The idea is that if you and I live in a house we own and then sell it we don’t pay capital gains tax but, if the house is worth enough, we have to pay stamp duty.  If we own two houses and sell one of them, well, we only get the CGT exemption (broadly) for one house at a time.  So if we had to sell the estate in Scotland to finance the country house in Berkshire we’d have to pay capital gains tax on the estate (pause for hollow laughter, because capital gains tax is a notoriously voluntary tax) and Stamp Duty Land Tax.  So we’d put the estate into a company, preferably offshore, and just sell the shares in the company instead, right?  Hence ATED, an annual tax on “enveloped dwellings” – houses that are put into some kind of corporate ownership rather than being owned by a natural person.

In that light, the fact that the tax only started in April last year and already the buggers are wanting the “burden” of administering the tax to be eased seems preposterous to me: the condoc says upfront that the entire aim of ATED in the first place is

to discourage enveloping, to encourage the de-enveloping of property and to ensure that those who continue to hold property in this way pay a fair share of tax

The consultation also says it should be read “by those currently within the charge to ATED… those who are likely to fall within the regime in the future, ATED practitioners and representative bodies” (Pause to boggle at the thought that there are already “ATED practitioners”)  Yes, I know that there are inoffensive businesses which have to claim exemption from ATED and it is, presumably, reducing the administrative burden on these which is the aim of the consultation.  They are listed as:

1) property rental businesses (including preparation for sale, demolition and conversion);

2) dwellings opened to the public;

3) property developers (including exchange of dwellings interests);

4) property traders carrying on a property trading business;

5) financial institutions acquiring dwellings in the course of lending;

6) dwellings used for trade purposes (occupation by qualifying employees and partners);

7) farmhouses (occupation for the purposes of carrying on a trade of farming) and

8) providers of social housing. (2.6)

You know, I might have been persuaded that there was some legitimate policy aim in here, if I hadn’t read on, past the list of inoffensive businesses to the list of those who have already been engaged in “informal discussions” with HMRC.

They’re helpfully listed in Annex A: let’s play “spot the one whose interests most closely align with your own.”

Barratts PLC

British Land Company

British Property Federation

Burges Salmon

Cadogan

Chartered Institute of Taxation (CIOT)

Clifford Chance

Council for Licensed conveyancers

Deloittes

Ernst & Young

FTI Consulting

Grosvenor

Hunters Solicitors

KPMG

Law Society

National Landlords Association

Rawlinson & Hunter

Smith & Williamson

Stephenson Harwood

Taylor Wimpey PLC

All worthy enterprises, of course, but what about the rest of us?  Isn’t this all really a bit like… asking MPs to decide their own expenses claims???

 

Posted in Avoidance, Bit of politics, Consultation, HMRC | Tagged , | 3 Comments »

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Not A Mansion Tax

August 24, 2012

Yesterday was the closing date for the consultation on “Ensuring the fair taxation of residential property transactions” or the Not-A-Mansion-Tax.  Because, as we all remember, the Lib Dems came into the coalition with a commitment to a “Mansion Tax”  (“Introducing a Mansion Tax at a rate of 1 per cent on properties worth over £2 million, paid on the value of the property above that level” P14).  This is not that policy.

What this is, is a proposal that people who own properties worth more than £2 million via an “envelope” – for example by owning an offshore company that owns the property in question – should have to pay stamp duty when the property gets transferred to someone else, and should have to pay capital gains tax when they sell the property even though the legal owner might be a non-resident company (non-residents don’t normally pay UK capital gains tax) AND there should be a bit of an annual levy on the value of the property over £2 million.  Not quite the promised mansion tax, then, but enough to get the lib dems off the cons’  backs perhaps?

Anyway, here’s what I said:

This is an individual’s response and will also be published, with commentary, on my blog, http://tiintax.com. I have addressed your consultation questions in turn.

Annual charge

Question 2.1 Do you think that the current criteria for the 15 per cent SDLT rate should also apply to the annual charge? If not, what exclusions or additions would you make to the coverage of the annual charge? Why would you recommend such changes?

Yes, I agree it’s sensible that the criteria should be aligned. As a natural person, a citizen and a taxpayer, I would be in favour of the criteria being aligned in as broad a scope as possible – personally I would include ALL non-natural persons and not just “certain” ones, for example.

Question 2.2 Is the exclusion for property development businesses sufficient both to address the risk of avoidance and to ensure bona-fide businesses are excluded from the charge? If not, what changes to the exclusion for property development businesses would you recommend and why? How could such changes be policed?

I think the exclusion for property development businesses is unnecessary and would be adamantly imposed to any relaxation of the current proposals. Personally I’d go for the simplest option here and have no exclusion at all – the charge is, frankly, minimal for a company which is genuinely developing property and would (a) be factored in to their costs and (b) prove an incentive, if only a marginal one, for them to get on with the development and bring the property back into use.

Question 2.3 How might it be possible to develop an exclusion from the annual charge for collective investment vehicles which distinguishes between widely-held funds and quite narrowly held ones (that might potentially be used for avoidance)?

As you will have deduced, I have little or no sympathy for exclusions or limitations to this charge, so I would be against any such potential loophole.

Question 2.4 Should the definition of ‘residential property’ be the same as that used for stamp duty land tax? (See Annex B). If not, what amendments or exclusions (in addition to those set out above) need to be made and why?

Yes. Simplicity is very much to be favoured in developing a policy where the sense of entitlement and privilege of the potential payers is such that they will be actively looking for arbitrage and avoidance opportunities.

Question 2.5 What, if any, policy issues do you see with the proposed application of the annual charge to properties which either move into or out of liability or to multiple property ownership interests? What rules for valuation and submission of returns of annual charges in these circumstances do you think will be most appropriate?

The simplest possible. Base the charge on the valuation at the five year point and simply keep it that way for the next five years. This has the advantages of simplicity and certainty, and the tax charge could simply then be factored in to any price on any change of interest in the interim.

Question 2.6 Do you think a prior agreement service along the lines described will be helpful to property owners? If so, what would be the best way for it to operate from a stakeholder point of view?

Of course it would. But whether this would be beneficial for the remainder of the taxpayer base is moot: in my view the costs of achieving certainty in this area should be borne by the potential taxpaying entities. However a “determined once and then remaining stable for five years” solution (proposed in 2.5, above) would minimise the need for such a service.

Question 2.7 Are there any other aspects of the valuation proposals that will cause difficulties or require further clarification?

Not that I am aware of.

Question 2.8 What length of time do you think is reasonable for submitting the annual charge return and why? Would monthly payment instalments be a more preferable option?

Normal rules, I would have thought? Monthly *payment* options, fine, but annual *returns* on the same schedule as everyone else.

Question 2.9 What will the impact of the annual charge be on (i) the high value residential property as a whole, and (ii) landlords and tenants? What evidence do you have to support your view?

If the charge were to discourage non-resident entities from buying up the top end of the residential property market I think this would be a positive outcome as the drag caused by the increasing prices at the top end of the market has a negative effect on affordability for actual UK residents.

Question 2.10 To what extent do you think the impact of the 15 per cent SDLT charge will differ from that of the annual charge? Should the Government continue with both measures once the annual charge is in place? If not, why not?

If the country is in a fiscal crisis which requires removing cost of living pay rises from public servants, charging civil servants more for their pensions, exerting downward pressure on disability payments, selling off playing fields and rationing cancer treatments, then I think it is completely fair that owners of multi-million pound properties should be required to make a substantial contribution to deficit reduction as well. I am wholly in favour of both charges and absolutely against any relaxation.

Question 2.11 Do you think there are any equality issues that arise for people with protected characteristics as a result of the proposed annual charge?

There is a strong possibility that the charge will weigh more heavily on non-UK citizens than on UK citizens. I think that is wholly proportionate to the level of fiscal crisis described by the government and to the nature of the entities to be taxed.

Capital Gains Tax

Question 3.1 Are there entities or forms of ownership whose status as an individual or non- natural person requires clarification?

Interesting question (to which I have no answer). But I look forward to reading the responses document!

Question 3.2 Are there entities or other forms of ownership, other than charities, which should either be relieved from or included within the charge?

Absolutely not. And I’m not at all sure about charities in this context!

Question 3.3 Would the introduction of a £2 million threshold create any particular difficulties or adverse behavioural effects? If so, what are these likely to be?

No doubt there would be the usual rash of sales agreed at £1,999,999 and attempts to value fixtures and fittings sufficient to put the property below the threshold but no more than for other property taxes.

Question 3.4 Would a limit to properties valued at over £2 million create any particular complexities? If so, what are these likely to be?

As for 3.3

Question 3.5 Would this cause any compliance difficulties for collective investment arrangements or where share ownership is heavily diluted? If so, please explain what these would be.

No opinion.

Question 3.6 Does the adoption of the SDLT definition of ‘residential property’ (in Annex B) create any problems? If so, what amendments or exclusions (in addition to those set out above) need to be made and why?

Again, I think this is a policy area where simplicity is very much to be preferred in the design of legislation, if only in order to eliminate future avoidance activity.

Question 3.7 Are there any other issues concerning the design or delivery of the policy that need to be considered?

Yes: how are you going to collect tax from a non-resident entity if it doesn’t make a return in the first place and doesn’t come to the UK? I would strongly urge a simplified procedure where any unpaid tax creates a charge on the property and leads, ultimately, to confiscation.

Question 3.8 Do you think there are any equality issues that arise for people with protected characteristics as a result of the proposed extension of the CGT regime?

No.

Kind regards

Wendy Bradley
http://tiintax.com

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