View the related Tax Guidance about Transactions in UK land
Transactions in UK land ― individuals
Transactions in UK land ― individualsThe transactions in UK land rules are anti-avoidance rules that have been in the statute book in one form or another since before the introduction of capital gains tax in 1965.Generally, if an individual sells land (which includes buildings and any estate or interest in land or buildings), on first principles it is taxable as either:•trading income (if it is a trade or a venture in the nature of trade), or•a capital gainFor a discussion on when a sale of land or buildings could be considered to be trading income, see the Application of the badges of trade guidance note. Those rules on treating the sale as trading income have priority over the anti-avoidance provision discussed in this guidance note. What if the transaction is not a trade or venture in the nature of trade, but the UK property was purchased or developed with the intention of making a profit similar to that of a property dealer? This is where the transactions in UK land anti-avoidance provision bites, so as to treat the gain as income.This guidance note discusses the transactions in UK land regime as it applies to individuals disposing of UK land on or after 5 July 2016. For information on the previous regime, which applied to transactions taking place up to and including 4 July 2016, see Simon’s Taxes B5.235–B5.246 and BIM60300. The transactions in UK land rules also apply to companies. See the Transactions in UK land guidance
Property investment or trading?
Property investment or trading?Outline of property investment vs tradingThis guidance note applies to both individuals and companies.The distinction between income and capital profits is crucial to many areas of tax law and is a common issue for property transactions. Often it will be quite clear cut as to whether the activity is trading or investing in land. A person buying property to let out long term will be making a property investment, whereas someone buying a property to refurbish and sell (’flipping’) will most likely be trading as a property dealer or property developer. However, where is the line to be drawn between activity regarded as dealing and activity regarded as investment?First, it is important to realise that the tests for whether one is dealing in property or making a property investment are the same as for any other trade. Therefore, a good place to start is to look at the ‘badges of trade’ and considerations will include:•profit seeking motive•frequency and number of similar transactions•modification of the asset in order to make it more saleable•nature of the asset•connection with an existing trade•financing arrangements•length of ownership•the existence of a sales organisation•the reason for the acquisition or saleThe badges of trade are not a statutory concept but are a recognised set of criteria developed by the courts to identify when a person is undertaking a trading activity. They can be applied to property transactions just as they can to a variety of
Notional income and anti-avoidance for tax credits
Notional income and anti-avoidance for tax creditsThis guidance note considers special tax credit rules which can treat someone as having income they have not actually received.Migration of tax credits to universal creditNew claims for tax credits are no longer possible as they have been replaced by the universal credit for all claimants. Existing claimants will continue to receive tax credits until they are migrated to the universal credit system. Migration will take place when a change in circumstances is reported or when a migration notice letter is received. This is expected to be completed in 2024. There is information about migration notice letters on the GOV.UK website.See the Universal credit guidance note.Anti-avoidance for tax creditsThe tax credits legislation makes very little mention of specific anti-avoidance rules. Instead, it refers to ‘notional income’ which is income that is treated as the claimant’s income even though the claimant did not receive it. For example, these rules apply where claimants:•deliberately get rid of income in order to claim or increase their tax credits•fail to apply for income to which they are entitled•provide a service for low rates of paymentTCTM04801When advising a director of an owner-managed company in relation to tax credits, this is a key point. Clients may think that drawing minimal income from their company will enable them to increase not only tax credit claims but also give access to other Government support. The notional income provisions overrule such an approach.There are four different types of notional income
Permanent establishment
Permanent establishmentIntroductionA company that is not resident in the UK will only be subject to UK corporation tax if it carries on a trade in the UK through a permanent establishment. Where it does so, it will be subject to UK corporation tax on all profits that are attributable to the UK permanent establishment. There are exceptions to this rule for any person:•dealing in and developing UK land ― see the Transactions in UK land guidance note for further information•directly or indirectly disposing of UK land ― see the Disposals of UK land by non-resident companies (NRCG regime) ― overview guidance note•that generates profits from a UK property business, provided they arise on or after 6 April 2020 ― see the Non-resident landlords scheme (NRLS) guidance noteCTA 2009, s 5(2)This guidance note outlines when an overseas company will have a permanent establishment in the UK and how to calculate the profits attributable to that permanent establishment.The same principles may apply when determining whether a UK company has a permanent establishment in another country.In any case, where a double tax treaty is in place, this will typically provide that a UK company is only subject to tax in another country if it has a permanent establishment there. Most of the UK’s double tax treaties follow the Organisation for Economic Co-operation and Development (OECD) model tax treaty and the definition of permanent establishment is therefore the same as the UK definition.As part of the OECD’s base erosion and
Transactions in UK land
Transactions in UK landThe rules on taxing the profits of dealing in and developing UK land introduced by FA 2016 replace the previous legislation on transactions in land. The rules are widely drafted and catch all persons undertaking transactions in UK land and property, whether resident in the UK or resident outside the UK. The rules apply to profits recognised in the accounts on or after 8 March 2017, regardless of the date of the contract, ie even if the contract was entered into prior to 5 July 2016 (the date upon which the legislation came into force).This guidance note covers the latest rules as they apply for corporation tax purposes. The pre-2016 rules for corporation tax are covered in Simon’s Taxes at B5.235 onwards.Similar provisions apply for income tax as explained in the Transactions in UK land ― individuals guidance note. HMRC has confirmed that it is not the purpose of the rules to alter the treatment of the activity if it is clearly investment. Transactions such as buying or repairing a property to generate rental income and to enjoy capital appreciation are not likely to be treated as trading activity under the transactions in UK land provisions. Introduction to the current regimeEven with the rate of corporation tax being the same on income and gains, the relevance of these rules is:•foreign companies, or their permanent establishments (PEs) in the UK (and in some cases those even falling short of being a PE using double tax treaties) which
Disposal of land ― individuals
Disposal of land ― individualsIf an individual disposes of land (which includes buildings and any estate or interest in land or buildings), on first principles it will be taxable as either:•trading income (if it is a trade or a venture in the nature of trade), or•a capital gain (but see anti-avoidance below)For a discussion of when the disposal of land or buildings could be considered to be trading income, see the Application of the badges of trade guidance note. The rules on treating the sale as trading income have priority over the capital gains tax treatment discussed in this guidance note.However, what if the disposal of land is not considered to be a trade or a venture in the nature of trade but it is still a disposal with the intention of making a profit similar to that of a property dealer? This is where the transactions in UK land anti-avoidance provisions bite to treat the gain as trading income. The conditions and the types of situation caught by this anti-avoidance provision are discussed in detail in the Transactions in UK land ― individuals guidance note.The commentary below explains the various types of part disposal associated with land. Guidance notes on topics associated with the disposal of land but not specifically covered within this note are listed below in ‘Other points to consider’. Also, bear in mind that if the individual is not resident in the UK and the disposal is of UK land, the computation rules
Non-resident capital gains tax (NRCGT) on UK land ― individuals
Non-resident capital gains tax (NRCGT) on UK land ― individualsBackgroundHistorically, only UK resident individuals and entities, together with temporary non-UK resident individuals and those operating via a UK permanent establishment, branch or agency, were subject to UK capital gains tax (CGT), whilst non-UK residents were not. However, this was widened from 6 April 2013 to include disposals of UK dwellings owned by non-resident companies, partnerships and collective investment schemes where the dwelling was subject to the annual tax on enveloped dwellings (ATED) charge, which was subsequently repealed in April 2019 due to the introduction of the regime discussed below. For more on the ATED charge and the ATED-related CGT charge, see the Overview of the ATED regime guidance note.From 6 April 2015, the CGT regime was extended to non-UK residents disposing of UK residential property. This was known as the non-resident capital gains tax (NRCGT) regime. The NRCGT regime was rewritten and extended to cover both non-residential UK property and indirect disposals of UK property with effect from 6 April 2019, meaning all disposals of interests in UK land by non-residents are within its scope. To prevent confusion, these are referred to in this guidance note as the NRCGT 2015 regime and the NRCGT 2019 regime, however, they may also be referred to as FA 2015 NRCGT or FA15 NRCGT and FA 2019 NRCGT or FA19 NRCGT.This guidance note discusses the NRCGT 2019 regime as it applies to individuals disposing of UK property on or after 6 April 2019. For information
Non-resident capital gains tax (NRCGT) on UK land ― individuals ― interaction with other tax provisions
Non-resident capital gains tax (NRCGT) on UK land ― individuals ― interaction with other tax provisionsNon-resident capital gains tax on disposals of interests in UK landUnder the non-resident capital gains tax (NRCGT) regime, non-residents are subject to UK capital gains tax on the following disposals:•direct disposals of an interest in UK land (eg the non-resident disposes of UK land that they own)•indirect disposals of an interest in UK land, ie disposals of an asset that derive at least 75% of their value from UK land in which the taxpayer has a substantial indirect interest in the land (eg the non-resident disposes of shares in a company that owns UK land)TCGA 1992, ss 1A(3)(b), (c), 2B(4)–(6)The NRCGT rules in their present form were introduced from 6 April 2019 and may be referred to as the NRCGT 2019 regime. Other possible names for the regime are FA 2019 NRCGT or FA19 NRCGT.For full details, see the Non-resident capital gains tax (NRCGT) on UK land ― individuals guidance note. It is recommended to read that guidance note before continuing.This guidance note discusses how the NRCGT regime interacts with other parts of the tax code.Principal private residence reliefAlthough unlikely given the need for the individual to remain non-resident, it is possible that a UK residential property could qualify for principal private residence relief (PPR relief, also known as private residence relief or only or main residence relief).In order for PPR relief to be relevant, the property would have to be a ‘residence’
Application of split year treatment to component income and gains (2013/14 onwards)
Application of split year treatment to component income and gains (2013/14 onwards)STOP PRESS: At Spring Budget 2024, the Chancellor announced that the remittance basis would be abolished from 6 April 2025, although this only applies to foreign income and gains arising on or after that date. The remittance basis rules still apply to unremitted income and gains arising before that date but remitted later. For more details, see the Abolition of the remittance basis from 2025/26 guidance note.A person’s liability to UK tax is determined by his residence and domicile status. From 6 April 2013, a person’s residence is determined using the statutory residence test. See the Determining residence status (2013/14 onwards) guidance note. For details of domicile and why it is important for UK tax purposes, see the Domicile guidance note.Although residence is usually determined for the tax year as a whole, it may be possible to split the year into periods of UK residence and non-residence if the person comes to the UK or leaves the UK and meets certain conditions.Overview of the split year testSince 6 April 2013 split year treatment for residence status has been codified. Previously the treatment was available by the application of extra-statutory concessions and these concessions have been replicated as closely as possible in the legislation.It is possible to split the tax year into periods of residence and non-residence if the individual is resident in the UK in that tax year (using the statutory residence test) and his circumstances fall within
DPT ― avoidance of UK permanent establishment
DPT ― avoidance of UK permanent establishmentThis guidance note sets out the circumstances in which a charge to diverted profits tax (DPT) can arise in the context of a non-UK company that avoids creating a UK permanent establishment (PE), under the provisions of FA 2015, s 86. There are a number of significant underlying legal and direct tax issues that need to be considered in analysing what constitutes a PE for this purpose. Please refer to the Permanent establishment guidance note for further details.To summarise, the main purpose of FA 2015, s 86 is to challenge certain artificial arrangements and to bring them into charge to UK tax. In order to bring the profits arising from such arrangements into charge, FA 2015, s 86 deems there to be a notional PE of the non-resident company in the UK, in the form of the company or person with a UK presence providing related services or generally undertaking related UK activity (referred to as the ‘avoided PE’ under FA 2015, s 86).HMRC must demonstrate that the arrangements were in fact designed to avoid a PE in the UK, and that avoidance of UK corporation tax was a main purpose. This is explained in further detail below.Broadly speaking, however, a charge to DPT arising under FA 2015, s 86 is limited to cases where there is a substantial level of economic activity in the UK. Consequently, there are three key exemptions which mean that a charge to DPT will not arise under
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