Chancellor Philip Hammond has closed a loophole in Finance Act 2016, to ensure that all profits from dealing in or developing land in the UK are brought into charge to UK tax, after discovering that some long-term contracts were not covered by the original conditions
The new measure means that all profits recognised in the accounts on or after 8 March 2017 will be brought into the charge to UK corporation tax or income tax, regardless of the date the contract was entered into.
The profits from trading in and developing land in the UK legislation was announced at Budget 2016 and had effect for disposals of property on or after 5 July 2016.
The legislation (sections 76 to 82 of FA 2016) brings into charge to UK corporation tax or income tax all profits from dealing in or developing land in the UK, irrespective of the residence of the person making the disposal. The current commencement rule at section 81 and section 82 of FA 2016 excludes profits from disposals made on or after 5 July 2016, but where the contract was entered into prior to 5 July 2016.
HMRC says the intention was to exclude the standard property disposal arrangement where the parties are committed on making the contract, but the transfer takes place a short time later.
However, HMRC says some contracts are entered into at an early stage in the development with transfers being made over an extended period of months or years. The result is that some profits from these long term contracts are not within the charge.
This was not the intention when the legislation was enacted and the Budget measure ensures that the rules set out in Finance Act 2016 work as intended.
It amends the profits from trading in and developing land legislation to remove the exception for contracts entered into before 5 July 2016 and bring all profits recognised in the accounts on or after 8 March 2017 into the charge to UK corporation tax or income tax.
Legislation will be introduced in Finance Bill 2017 to the effect that all profits from dealing in or developing land in the UK that are recognised in the accounts on or after 8 March 2017 will be taxed. This will be the case even if the contract for disposal was entered into prior to 5 July 2016.
HMRC says the costs involved will be negligible but the change will impact offshore property developers who have made a contract for disposal of UK land prior to 5 July 2016 but recognise the disposal in their accounts after 8 March 2017.
HMRC policy paper, Income Tax and Corporation Tax: disposals of land in the UK, is here.
