Offshore developers and dealers in UK land
It used to be possible for an offshore company to purchase UK land, develop it and then sell it at a profit without a UK tax liability. This involved carefully structuring the arrangements so that they took advantage of tax treaties with various jurisdictions (usually Jersey, Guernsey or the Isle of Man).
The government and HMRC have finally taken action to stop this. They have taken a two-pronged approach.
Firstly, they have renegotiated the tax treaties with Jersey, Guernsey and the Isle of Man and these changes apply from 16 March 2016. Now under the treaties any gains derived from the alienation of UK land can be taxed in the UK. The same applies to gains from shares in unquoted shares deriving more than 50% of their value from UK land.
Secondly, they have extended the scope of UK corporation tax and income tax. A non-resident that has a trade of dealing in or developing UK land will now be fully subject to tax on all of the profits of that trade. Again, the rules can also apply to the disposal of shares or partnerships deriving more than 50% of their value from UK land. The changes apply to all disposals on or after 5 July 2016 though there is anti-avoidance legislation from 16 March 2016 to prevent arrangements aimed to avoid the new rules.
In some circumstances it may still be possible to take advantage of tax treaty reliefs, though, as a result of new anti-avoidance legislation, only where the treaty provision is not being applied in a way contrary to the object and purposes of the tax treaty. Whether or not this is the case is likely to be a highly subjective judgement and one can expect a significant number of disputes with HMRC on the matter.
Non-UK companies and individuals who are planning to develop UK land need to carefully consider these provisions.
Date: 7th October, 2016
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