On Tuesday, November 30, 2021, the government released a series of tax-related consultations and guidance documents as part of “Tax Administration and Maintenance Day”. Among these were a number of interesting real estate consultations.
- Stamp duty property tax (SDLT): purchases of mixed real estate and reduction of collective housing
- Call for testimonials: Simplifying the exemption from property VAT
- Company rates: technical advice
1. Stamp duty property tax (SDLT): purchases of mixed real estate and reduction of collective housing
HMRC has launched a new consultation that examines (a) reforming how SDLT applies to ‘mixed’ real estate transactions (i.e. transactions involving a mix of residential and non-residential properties), and ( b) the introduction of restrictions on the availability of collective housing relief (MDR).
Mixed real estate transactions
Under current rules, a transaction will generally only be subject to SDLT residential rates if the object of the transaction is entirely of residential property. As a result, a blended transaction is subject to the (significantly lower) non-residential rates.
HMRC is concerned about transactions without any significant non-residential items benefiting from the lower non-residential rates in a way they consider unfair. There is particular concern about the so-called “SDLT Salvage Agents”, who are encouraging buyers of what is in essence private accommodation to change their land transaction statements to claim the non-residential rates by referring to a small, and at times questionable, non-residential residential element of the land.
The consultation seeks opinions on two reform proposals. The first would require buyers to allocate consideration between residential and non-residential items (the relevant rates applying to each party). The second proposal is to introduce a rule that the acquisition of mixed-use real estate is only taxed at non-residential SDLT rates if the non-residential element of the transaction exceeds a certain threshold (50% is suggested ). In either case, transactions involving the purchase of “six or more units” would remain subject to non-residential rates in their entirety (unless the purchaser claims the MDR).
Regardless of the approach taken, these measures would have a broader effect than simply removing questionable mixed-use claims. It may be necessary to obtain valuations of the various elements in order to quantify the SDLT liabilities or to determine the percentage of the transaction that is non-residential. The application of residential tariffs is also considerably more complicated. That said, the “six or more dwellings” rule should ensure that transactions involving larger-scale mixed-use developments are not affected.
When the conditions are met, the MDR allows buyers of two or more homes to calculate their SDLT liability on a unit-by-unit basis, using the average consideration per unit. This allows the zero and lower rate brackets to be claimed for each dwelling, rather than just once, reducing the overall liability of the SDLT.
HMRC is concerned about the abuse of this relief, especially when buyers argue that what is in essence one unit is in fact two units (on the basis that a small ancillary item with basic amenities constitutes one unit). separate). HMRC is therefore consulting on a range of options to restrict the availability of the MDR to rule out such claims, for example by limiting it to buyers acquiring the homes for commercial purposes, or by allowing it to be claimed only for three or more. more homes.
Again, these reforms would have a broader impact than just preventing abuse, although those affected should primarily be private buyers rather than companies.
2. Call for testimonials: Simplify the exemption from property VAT
HMRC published a summary of responses to a “call for evidence” on the VAT exemption for land that was published in May. The call for evidence called for comment on a wide range of proposals, some of which, if implemented, would represent a radical overhaul of the existing regime.
The call for evidence appears to have encountered an equally wide range of responses, with few cohesive themes emerging. The majority of those questioned, however, called for caution before introducing radical changes.
HMRC rejected many of the suggestions made in the call for evidence, but decided to continue consultations on (a) establishing a viable definition of “short-term” or “minor” interests in the lands that would be automatically assessed against the standard, and b) the implications of being subject to a limited number of exemptions for all deliveries of land subject to the VAT standard. The HMRC recognizes that this latter proposal would constitute an important change opposed by a clear majority of respondents, but nevertheless wishes to better understand what the challenges and unintended consequences of such a reform would be.
HMRC also notes that it is open to discussing other suggestions as part of this process. In particular, the door was (provisionally) left open to reforming the existing option of taxing anti-avoidance rules. Given the difficulties that these provisions can cause in arm’s length business transactions without any motive or objective of tax evasion, meaningful reform in this area would be welcome.
3. Company rates: technical consultation
As promised in the fall budget, the government has launched a technical consultation on how to implement some of the changes it has promised to the corporate tariff regime, including:
- Relief from improvements for eligible work;
- Certain “green” measures (eg exemption for eligible installations and machinery used in the production and storage of renewable energy on site (eg solar panels) from 2023 to 2035); and
- A switch to a 3-year real estate revaluation cycle
For more details on what was promised for corporate rates in the fall budget, see here.
A little more detail was provided on the work that will be eligible for the improvement relief: (i) the work must result in a positive change in the assessed value of the building (e.g. increase in size, improvements to the building). physical condition of the property or the addition of other taxable facilities and machinery) and (ii) the property must remain occupied by the same taxpayer. The intention behind the second condition is to ensure that the relief is intended for taxpayers who invest in their own “active” business, and not for owners, real estate developers or new occupants.
The “green” measures were largely as expected, although the government noted that to be eligible, the facility and machinery must be used for energy production or storage when the energy source is “entirely. or mainly ”from renewable energies. The government is also seeking to relieve low-carbon heating networks.
Regarding triennial appraisals, the consultation foresees a new obligation (not mentioned in the Fall Budget) for professional taxpayers to inform the Agency of the appraisal office whenever circumstances change in relation to their property. (eg rent increases, modifications and changes to occupancy) and provide an annual confirmation statement. Some businesses (e.g. pubs, gas stations) will also need to provide information about their business and accounts where relevant to their assessed value. There will also be a system of sanctions in the event of non-compliance with these new obligations. These changes are likely to result in increased administrative burdens for business taxpayers, despite the stated intention that the system be “simple, easy to use and [adding] minimum additional burden for taxpayers ”.