The Finance Bill received Royal Assent on 15 September and, despite representations, it is most disappointing that the clauses referred to in my previous blog have been enacted as drafted, so there is still potential uncertainty for landlords.
However, the National Landlords Association sought clarification from HM Revenue & Customs and received some assurances from them as to the purpose of the legislation as set out below.
“HMRC considers that generally property investors that buy properties to let out to generate property income, and some years later sell the properties, will be subject to capital gains on their disposals rather than being charged to income on the disposal’
However, there are exceptional cases in which the gains will be charged to income tax. These are:
- where the investor decides to undertake development prior to sale. In this case the profit on the developed part, from the date the decision to develop for sale, will be trading income.
- where the investor sells the land in a contract with a ‘slice of the action’ clause allowing them to benefit from future development of the property. In this case the ‘slice of the action’ profit will be taxed under the new legislation.
- Per HMRC, in both cases, these profits would already have been taxed as income under the existing legislation. HMRC have said they will issue further guidance soon.
In short, whilst the reassurances from HMRC are welcome, as these hold no statutory power, taxpayers are left in the disappointing position of potentially being caught by unclear legislation which HMRC says that, effectively by concession, they will not apply in a particular way.
If you have any concerns about this or any other property tax issue please do contact myself or your usual BHP contact.
