1 . Introduction Recent data on property sales in the UK show that there has been a marked slowdown in transactions in the usual hot spots , especially London ; and particularly in the high-value category where overseas investors have been keen buyers in recent years . The steep rise in Stamp Duty at the highest levels has certainly been a major contributing factor : but there are other significant tax changes that have recently taken place , are in the implementation phase , or are planned . We look at the key changes below .
Much of the sales and price growth in this sector was fuelled by international investors , looking for a safe haven investment with potential capital growth and tax advantages . This last advantage is being reined in by the UK Government .
2 . Tax on loans An offshore company is often set up to acquire a property and that company is loaned the purchase price by its international parent . In this case , HMRC will assess whether the interest on that connected party loan is comparable to third party open market rates . Tax relief on interest may be limited to a market rate %. Additionally , withholding tax of 20 % may be payable if the interest is payable from the UK abroad or if the payee is an individual person .
From April 6 , 2017 , those businesses that pay UK corporation tax are also restricted in the amount they can claim on interest . For a company or group of companies , net interest deductions are limited to the highest of these three :
1 . £ 2m net interest 2 . 30 % of Tax-EBITDA 3 . Tax-EBITDA x ( external interest / EBITDA ) Where a business rents to third party tenants , and is in turn financed through loans from other unconnected third parties , there are certain exclusions to the above limitations that may be applied for .
It is a fast-moving situation ; and the clear intention is that many property companies ( and their groups ) that just pay income tax in the UK will also have to pay corporation tax with effect from April 2018 .
Individual higher rate-paying property investors / developers face a gradual increase in income tax from April 2017 . Previously they could deduct the interest from tax in full : this will be replaced by a tax credit scheme that only offers relief at the basic rate , currently 25 %. This is being gradually phased in over a 4-year period .
As ever , seek professional advice .
3 . NRCGT Changes- Residential Dwellings These Non-Resident Capital Gains Tax changes came in from April 2015 :
The following classes of non-UK resident people or organisations began to be charged Capital Gains Tax when they disposed of UK residential dwellings and made a gain .
· Non-resident individuals and partnership shares