Finance Act 2016 brought in new rules to ensure that overseas property traders and developers are subject to UK income tax or corporation tax when they dispose of UK properties from 5 July 2016. However the way in which the legislation is drafted may catch some buy-to-let landlords.
The new rules treat UK property sales/development of land as part of a trade and therefore potentially taxed at income tax rates up to 45% instead of the 28% rate that would apply to capital gains. There would also be class 2 and class 4 national insurance contributions due if the transaction is deemed to be part of trading.
The transaction is taxed as trading if:
- One of the main purposes in acquiring the land was to realise a profit on its disposal; or
- One of the main purposes in acquiring the property which derives its value from land was to realise a profit on its disposal; or
- The land is held as trading stock; or
- One of the main purposes of developing the land was to realise a profit on its disposal when developed
There will be no change in tax treatment for individuals or partnerships already operating as property dealers or developers.
However, it is felt that those buy-to-let investors who acquired a property with a view to ultimately selling on at a profit may be brought within the scope of the new rules by condition (a).