Big Picture and Trends
As a general overview, Michael explained that the over-complex property tax legislation was a deterrent to those thinking of undertaking property transactions. In addition, HMRC has in the past used information available to it (via CONNECT and the CRS for example) to implement task-forces aimed at taking a closer look at property transactions, such as SDLT checks on corporate purchasers and the Offshore Property Developers Taskforce.
These task-forces have ended and most property related tax-avoidance schemes have ceased. Therefore, it is time to consider where HMRC may set its sights next. A logical step is for HMRC to look at those (e.g.) with international tax positions, particularly given the increasingly global exchange of information. Those with international structures are automatically at higher risk of making errors or committing fraud due to the inherent complexity of their affairs. Indeed, Michael commented that it was surprising that HMRC had not gone after these positions previously.
Property litigation is becoming increasingly procedural rather than tax technical, with each side focusing on whether they had met the procedural requirements for carrying out an investigation or bringing the case to tribunal in the first instance.
Property tax transaction issues
There are a number of areas advisers need to consider when a client comes to them with a property transaction.
- Is the sale of land capital or revenue in nature?
- Is the land being acquired as stock or capital? For land to be transferred from capital to stock, there has to be a clear intention to trade; simply deciding to sell land is insufficient for its nature to change;
- Deductibility of costs;
- Transactions in land rules (HMRC guidance at BIM60300 provides a good overview of these);
- CGT reliefs such as holdover relief – consider the practical aspects as well as the tax technical. In theory, the idea of (e.g.) purchasing new farmland to rollover the gain on sale of previous land to a developer may work very well. In practice however, it may be that other landowners may ask for a higher price or wish to hold on to their land and sell it directly to the developer themselves.
In all cases, (regrettably) advice should be given as though the case were to come before tribunal. This is on the basis that in the event does come before a court, relevant and contemporaneous documentation explaining the background to the transaction is readily available.
Michael briefly reviewed the pros and cons of collaboration agreements and the Jenkins v Brown land pool Trust. The main benefit of such an arrangement is that if the land is pooled into a trust, there are no SDLT/CGT consequences. Cons include the fact that CGT and IHT reliefs on the land are lost and more obviously, the various persons involved in the land pool may not get on.
The taxation of barter transactions are treated differently for different taxes. Therefore, when advising on these, it is best to take a “tax by tax” approach rather than trying to get to one coherent view across all of them.
Michael briefly discussed the interaction of SDLT and VAT, citing Balhousie Holdings Ltd v RCC  UKSC 11, which looked specifically at a sale and leaseback agreement relating to a care home. In this case, the Supreme Court looked at a realistic view of the facts (i.e. that the sale and leaseback happened simultaneously and did not therefore amount to a disposal of the entire interest in the care home) rather than looking piecemeal at each transaction separately.
The key anti-avoidance provision in relation to property transactions is found at s75A, Finance Act 2003. Essentially, where there is avoidance of SDLT by way of a number of transactions, where a direct transfer would have resulted in a higher amount of SDLT due, then the direct transfer is deemed to have taken place. Contrary to anti-avoidance provisions in other taxes, there is no motive test in this piece of legislation. This could happen where there are other motives at stake, such as protection of property by using a trust or other structure.
HMRC manuals explain when and how it will apply the s75A charge (SDLTM09050).
The problem with s75A is that it catches perfectly innocent transactions as well as those which were set out for the SDLT avoidance. Areas that may be affected include de-enveloping properties and transactions involving partnerships, both of which are fairly common and generally carried out for bona-fide purposes.
Importance of implementation
Finally, Michael discussed the importance of how transactions are structured in practical terms. This is an area which can be easily overlooked, especially when bogged down in tax technical detail. The facts of a transaction are always the starting point and contemporaneous evidence is key. HMRC are acting with hindsight where the taxpayer (and advisers) should be acting with foresight. Therefore, in the interests of protecting your clients and yourself, be sure to document any decision making and retain the evidence.
Remember, taxpayers do not get a second chance.