Press Room

17 Nov 2022

Property, I don’t see a property – Andrew Parkes

As landlords are a soft and popular target, the Government has brought in a number of measures that increase the tax burden on plutocratic property magnates, who will clearly be first against the wall come the revolution.

These changes include an increase in SDLT, restriction of deductions for loan interest, a capital gains tax surcharge and a need to pay the capital gains tax early.

These last two changes were the subject of a query we had recently.

A property had been bought back in 1963, demolished 50 years later and the land was about to be sold with planning permission for a new house.

The client was aware of the accelerated payment schedule and the extra tax that would be due, but hoped that the demolition of the property would take them out of scope. They were also concerned that the planning permission would bring them straight back in again.

As is often the case, there was good news and bad news…

Starting with the bad news (to get it over with), the demolition did not take the disposal outside of the rules, but gave the owner a mixed-use property. The gain would be time apportioned between when there was a property on the land, and from when that property had been demolished.

They would have two gains, the ‘dwelling gain’, with tax charged at an extra 8% and payable within 60 days, and the second ‘normal gain’, with tax payable at the usual rates and time.

The good news was that the planning permission did not amount to the sale being “a contract for the acquisition of land consisting of or including a building that is to be constructed”, i.e. an off-plan purchase.

Had this been the case, then the period after the demolition of the old property and the sale would have been considered to be all chargeable as a dwelling gain. In this particular case, it would have increased the effective rate on the gain from 25% to 28%.

Instead, they get a slightly reduced rate of tax, and they are able to pay a proportion of the tax in line with the usual self assessment rules, but at the cost of increased complexity.

This neatly sums up the current UK tax system. Many benefits or relaxations come with such a level of complexity or administrative burden that, frankly, people don’t want them. In the case mentioned here, the taxpayer is considering filing as if it was a property all along to make life easier; not something we recommend, but we can nonetheless sympathise.

Andrew Parkes

Andrew is a highly experienced international tax specialist who worked at a senior level in HMRC’s international teams for over 10 years. He has a wealth of experience and technical knowledge.

Email: Andrew Parkes