Over recent years, there have been a number of offshore structures used by property developers to minimise the level of UK tax payable on their trading profits, often through use of double tax treaties. Many of these historic structures have already been collapsed or brought onshore, following the introduction of the Diverted Profits Tax (DPT) from April 2015.
The Government today have announced a number of specific measures to ensure that trading profits derived from land in the UK is fully subject to UK tax. These measures include:
- Amendments to the protocols with Guernsey, Isle of Man and Jersey amending the Double Tax Treaties to preserve the UK’s taxing rights over land in the UK;
- Specific legislation to create “a UK property trade”, whether or not undertaken through a UK PE, which will be subject to corporation tax on its profits.
- Targeted Anti-avoidance legislation, applicable from today, to prevent developers avoiding the full impact of the changes by flipping, fragmenting or enveloping the development prior to Royal Assent of the new legislation.
- Amending the anti-avoidance legislation in relation to transaction in land to widen its scope further.
In addition, HMRC will also create a task force to focus on offshore property developers to target these structures and will also consider introducing a withholding tax if necessary.
Those property developers who have not already come on-shore, following the introduction of DPT, will need to give serious consideration to the new legislation and its application. At first glance, the proposals seem fairly comprehensive and wide reaching – coupled with the reduction in the rate of corporation tax, now may well be a good time to come onshore.
Those taxpayers who have historically run these offshore structures, can expect to be under greater scrutiny from the specific task force established so the implementation and running of the structures is likely to be increasingly challenged by HMRC.