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Autumn Statement 2015: real estate tax headlines

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Summary: Our summary of the key real estate tax headlines in the Autumn Statement, including further changes to residential SDLT and confirmation of seeding relief for authorised funds. Real estate funds will also be also be interested in the implementation of the BEPS hybrid mismatch proposals and yet another attack on investment manager remuneration.

SDLT seeding relief for authorised funds

  • As expected, the government has confirmed the introduction of SDLT seeding relief for PAIFs and the new Co-ownership Authorised Contractual Schemes (CoACS). This relief will take effect from summer 2016.
  • There will be an 18 month window during which a new PAIF or CoACS can claim the relief and a portfolio test will require either 100 residential properties or 10 commercial properties, in either case worth at least £100m.
  • In addition, transactions in CoACS units will not be subject to SDLT.
  • Unfortunately, however, the government has stuck with its proposal for a three year claw-back period. No further details of this were published today. However, our concern remains that such a restriction on liquidity may hamper the usefulness of the relief.

More tax changes for asset manager remuneration

  • Following the new disguised investment management fee rules and recent changes to the taxation of carried interest, the government will introduce yet another tax change aimed at asset managers. New rules will tax an asset manager’s performance reward as income unless the underlying fund undertakes long term investment activity.

OECD BEPS project: hybrid mismatches

  • As expected, the UK will implement the BEPS proposals on hybrid mismatches with effect from 1 January 2017. These rules will be aimed at instruments and entities that seek to exploit being taxed differently in different jurisdictions e.g. an instrument treated as debt in the borrower’s country but equity in the lender’s or an entity that is transparent in one jurisdiction but opaque in another.
  • The government is not proposing any grandfathering so existing structures will be affected.

0.5% apprenticeship levy for large employers

  • Larger UK employers in the real estate sector will be hit by the new apprenticeship levy. This will be set at 0.5% of any part of an employer’s payroll that exceeds £3m. It will apply from April 2017.

ATED & 15% SDLT reliefs to be extended

  • The relief from the annual tax on enveloped dwellings and the 15% SDLT rate for property development is to be extended. We believe this will address the current lacuna where the site being acquired must itself be developed for profit as part of a property business to qualify for the relief.
  • Currently sites that will not be sold at a profit (or let) will not qualify for the relief, even if their development is related to and necessary for a commercial development (e.g. a new school built and let back to the council for a peppercorn as a condition of a s.106 agreement).  Similarly, a non-property business that acquires a £500k+ residential property to be demolished or converted for commercial use currently has to pay the 15% rate.
  • This change is expected to apply from April 2016.

SDLT increase for buy to let and second homes

  • From April 2016 SDLT rates will increase by 3% for certain purchasers of residential property. The increased rates are aimed at “additional residential properties” such as second homes and buy to let.
  • The new rates will simply be set at 3% above the current rates, so purchasers of relevant properties will pay between 3% and 18% depending upon price and the identity of the purchaser. The current rates will remain in place for residential property that is not caught by these new rules.
  • The government will consult on exemptions for corporates and funds, including the minimum number of properties they must own for the exemption to apply (the Autumn Statement documents suggest 15).
  • There are already a multitude of SDLT rules for residential property and these new rules will only increase the complexity and the need for specialist tax advice.

SDLT filing deadlines to be cut to 14 days

  • From 2017 the deadline for filing an SDLT return and paying the tax will be cut from 30 days to 14 days.

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