If you thought paying Capital Gains at higher rates was bad enough wait till you have to pay income tax rates on the gains!
As reported by Property 118 on 25th August 2016
The government have slipped some additional clauses into the finance bill 2016 “Sections 75-78: taxation of profits from trading and investing in UK Land” which make profits made on the sale of buy-to-let property become taxable income, at income tax rates.
‘Slice of the action’ contracts are so called because they confer upon a landowner (who holds the land as an investment) the right to share in the proceeds of any subsequent development by the purchaser. In these cases, the contract for sale of the land to a builder or developer provides for consideration that is, in whole or in part, contingent upon the successful development of the land.
A common arrangement is for the landowner to receive a fixed sum at the time of the disposal, plus a percentage of the sale proceeds of each building subsequently constructed by the purchaser on the land. [BIM60350]
‘Slice of the action’ clauses are also known as ‘Overage’ and ‘Uplift’ they are subject to anti avoidance rules because an advantage could be gained by the land owner being tax on the ‘slice of the action’ as a capital gain instead of being tax on it as trading income. There could be a difference of 25% tax between the treatments!
Often the vendor and their legal advisers are unaware of the anti-avoidance provisions for transactions in Land.
The provisions are drawn in very wide terms. Therefore, it is not possible to provide a summary of all the situations in which the rules are applicable, although there is a list of cases in which the rules should be considered in BIM60337.
There are, however, two common situations in which the rules are regularly invoked:
Its important that starting with the Heads of Terms the legal documents clearly show the intentions of the parties.
There is a formal clearance procedure available for taxpayers who think that these rules may apply to a proposed transaction or a transaction that has already taken place (see BIM60395).
HMRC must give the applicant a decision on the transactions in land clearance within 30 days. Therefore, any clearance applications received should be identified as such and sent to the Clearance and Counteraction Team for consideration as soon as possible.
Once HMRC give a clearance, the transactions in land provisions cannot be invoked in respect of that disposal in relation to that taxpayer.
In a ‘slice of the action’ contract (see BIM60350) the following legislation is normally relevant:
S756(3)(d) ITA 2007 for individuals, trustees and personal representatives
S819(2)(d) CTA 2010 (for companies)
Where either of these subsections is in point, part of the overall gain may be exempted from the transactions in land rules. The effect of the exemption is to take out of the calculation of the income to be charged so much of the gain as is attributable to the period before the intention to develop the land was formed. In other words allowing the gain to be taxed as a capital gain.
• Average House Price: 9 June £297,508 August £304,116 – Zoopla
• More FTB Mortgages issued in June since 2007
• First time buyers make up 47% of the market in Q1 2016 – 154,200 Deposit is £33.960 up 14%.
• BTL arrears falling after Brexit 9,300 Q1 2016 to 6,600 in Q4
Top Buy to LetMortgages
• TMW: 2.49% 2 Year Fix 75% LTV
• B Mids: 2.84% 2 Year Fix 75% LTV
• KENT REL: 4.99% 2 Year Fix to 85% LTV
• VIRGIN: 2.54% 2 Year Fix 75% LTV
• MORT TRUST: 2.80% 31/01/18 75% LTV
• COVENTRY: 3.29% 2 Year Fix 75% LTV
Top Long Term BTL
• BMSols: 3.29% 5 Year Fix 75% LTV
• VIRGIN: 3.48% 5 Year Fix 75% LTV
• Coventry: 3.19% 5 Year Fix 65% LTV
BRIDGING & DEVELOPMENT
• Typical 70-75% LTV x Purchase Price
• Arrangement Fees 2%
• Monthly Interest from 1%
50% x GDV
100% x Build Cost in Stages
50-60% x Purchase Price
Please contact Rory to discuss the information in this blog.
Specific deductions: administration: own training courses
Provided it is incurred wholly and exclusively for the purposes of the trade carried on by the individual at the time the training is undertaken, expenditure on training courses attended by the proprietor of a business (either as a sole trader, or in partnership with others) with the purpose of up-dating their skills and professional expertise is normally revenue expenditure, which is deductible from the profits of the business.
Business purpose test
In considering the question of purpose, you should not take an unduly narrow view of whether the content of any particular course only up-dates existing skills of the individual. But if it is clear that, for example, a completely new specialisation or qualification will be acquired as a result of the expenditure, it is unlikely that the expenditure will be wholly and exclusively for the purposes of the existing trade.
Expenditure on new skills etc may also be capital if what is acquired can be viewed as an identifiable asset of sufficient substance and endurance. See Dass v Special Commissioner and others  EWHC2491 (Ch)
Let’s take the example of Property Courses
There are many property courses available for investors, often the investors are self employed/sole traders/individual investors, the courses can cost thousands.
What courses are claimable:
Improving your skills – for example you have a basic understanding of finances but want improve your knowledge of tax
What courses are not claimable:
Beginners Day/Novice Courses – any course for beginners or novices would suggest you have no previous knowledge so they won’t be allowed
New Skills – you want to learn something new for example you currently let property and want to learn how to do property development
If the course is disallowed the travel costs will also be disallowed
What about companies?
The rules for companies are much easier to comply with and written with a much wider scope..
Section 250 Exemption of work-related training provision
(1)No liability to income tax arises by virtue of—
(a)the provision for an employee of work-related training or any benefit incidental to such training, or
(b)the payment or reimbursement to or in respect of an employee of—
(i)the cost of work-related training or of any benefit incidental to such training, or
(ii)any costs of a kind specified in subsection (2) in respect of such training.
(2)The costs are—
(a)costs which are incidental to the employee undertaking the training,
(b)expenses incurred in connection with an examination or other assessment of what the employee has gained from the training, and
(c)the cost of obtaining any qualification, registration or award to which the employee becomes or may become entitled as a result of the training or such an examination or other assessment.
Section 251 Meaning of “work-related training”
(1)In this Chapter “work-related training”, in relation to an employee, means a training course or other activity designed to impart, instil, improve or reinforce any knowledge, skills or personal qualities which—
(a)are likely to prove useful to the employee when performing the duties of the employment or a related employment, or
(b)will qualify or better qualify the employee—
(i)to perform those duties, or
(ii)to participate in any charitable or voluntary activities that are available to be performed in association with the employment or a related employment.
(2)For this purpose “related employment”, in relation to an employee, means another employment with the same employer, or with a person connected with the employer, which the employee—
(a)is to hold,
(b)has a serious opportunity of holding, or
(c)can realistically expect to have a serious opportunity of holding in due course.
You’ll get 100% relief (doubled from the usual rate of 50%) until 31 March 2017 for properties with a rateable value of £6,000 or less. This means you won’t pay business rates on properties with a rateable value of £6,000 or less.
The rate of relief will gradually decrease from 100% to 0% for properties with a rateable value between £6,001 and £12,000.
You have more than one property
You can get small business rate relief if the rateable value of each of your other properties is less than £2,600.
The rateable values of the properties are added together and the relief applied to the main property.
You’ll keep getting any existing relief for one year when you get a second property.
You’re a small business but don’t qualify for relief
If your property has a rateable value below £18,000 (£25,500 in Greater London) you’re considered a small business.
Even if you don’t qualify for small business rate relief, your business rates will be calculated using the small business multiplier instead of the standard one. This is the case even if you have multiple occupied properties.
The multiplier shows the percentage (pence in the pound) of the rateable value that you pay in business rates. You can see a list of current multipliers on the Valuation Office Agency (VOA) website.