I’m lucky in that I work in a tax team that advises on a variety of corporate workstreams, including M&A, group reorganisations/demergers, real estate transactions, housebuilding, banking and share scheme work. In 2018/19, we have had a large number of instructions looking to use our expertise in structuring share schemes. Over the last few years, we have been involved in a number of large urban development projects and enjoying (is that the right word?) the tax complexities that arise when housebuilders, investors and charities decide to collaborate in developing land.
If you could make one change to tax law, what would it be?
Legislation is long overdue that deals with the obiter dicta in Burca v Parkinson [2001] STC 1298 in relation to the equalisation of proceeds of sale between collaborating landowners on the phased development of land. If you could put in place legislation which would allow Farmer A and Investor B to enter into an arrangement whereby their respective parcels of land could be developed jointly with the proceeds of sale being equalised between them (without the double tax charge that Burca suggests will result), you would simplify the taxation of such land development considerably and arguably free up more land for residential development. It needs something akin to the 1980s changes that allowed companies to demerge on a tax neutral basis (when before there were limited reliefs for both target and shareholders).
Are there any new rules that are causing a particular problem?
The proposed 1% SDLT surcharge for non-UK residents may be problematic in practice when it is enacted and seems to lack a clear rationale. The stated purpose is, broadly, to level the playing field for UK residents. I’m not sure anyone has seen any evidence that it will have the slightest impact on the market in this respect. And from a practical perspective, it is going to be interesting to see how this new residency test will be applied by conveyancers (many of whom will not have tax teams to assist them).
What should we look out for this year?
The changes to the rules on the capital gains tax treatment of commercial land held by non-UK corporate investors that came into operation this April may see such corporates begin to argue that they are in fact property traders. The rate of corporation tax is the same whether you are an investor or trader, but:
the timing of deductions under TCGA 1992 is more restrictive than the wholly and exclusively test;
the deductions under TCGA 1992, such as they are, can only be enjoyed at the time of disposal;
the only immediate limited deductions against profits are via the capital allowances regime; and
the use of capital losses is more restrictive than for trading losses.
It is understandable that some corporates might look to change the way in which they hold the land in their accounts; describe the purpose of their acquisition in their board minutes and ancillary documents; and reconsider the rate at which they turnover their developments.
Are you concerned about any recent market developments?
The use of growth share structures is commonplace in the market at present. This requires a new class of share to be created which only receives economic value once certain performance hurdles are met. Until they are met, it is arguable that the other classes of ordinary shares in the target are preferred by comparison. This means that if a holder of ordinary shares wishes to claim or has claimed EIS or SEIS relief, the creation and issue of the growth share class may inadvertently jeopardise the availability of such reliefs.
And finally, you might not know this about me but...
I used to work for ICI plc where I became expert in – wait for it – the world carpet fibre market. No wonder a career as a tax lawyer seemed exciting.
I’m lucky in that I work in a tax team that advises on a variety of corporate workstreams, including M&A, group reorganisations/demergers, real estate transactions, housebuilding, banking and share scheme work. In 2018/19, we have had a large number of instructions looking to use our expertise in structuring share schemes. Over the last few years, we have been involved in a number of large urban development projects and enjoying (is that the right word?) the tax complexities that arise when housebuilders, investors and charities decide to collaborate in developing land.
If you could make one change to tax law, what would it be?
Legislation is long overdue that deals with the obiter dicta in Burca v Parkinson [2001] STC 1298 in relation to the equalisation of proceeds of sale between collaborating landowners on the phased development of land. If you could put in place legislation which would allow Farmer A and Investor B to enter into an arrangement whereby their respective parcels of land could be developed jointly with the proceeds of sale being equalised between them (without the double tax charge that Burca suggests will result), you would simplify the taxation of such land development considerably and arguably free up more land for residential development. It needs something akin to the 1980s changes that allowed companies to demerge on a tax neutral basis (when before there were limited reliefs for both target and shareholders).
Are there any new rules that are causing a particular problem?
The proposed 1% SDLT surcharge for non-UK residents may be problematic in practice when it is enacted and seems to lack a clear rationale. The stated purpose is, broadly, to level the playing field for UK residents. I’m not sure anyone has seen any evidence that it will have the slightest impact on the market in this respect. And from a practical perspective, it is going to be interesting to see how this new residency test will be applied by conveyancers (many of whom will not have tax teams to assist them).
What should we look out for this year?
The changes to the rules on the capital gains tax treatment of commercial land held by non-UK corporate investors that came into operation this April may see such corporates begin to argue that they are in fact property traders. The rate of corporation tax is the same whether you are an investor or trader, but:
the timing of deductions under TCGA 1992 is more restrictive than the wholly and exclusively test;
the deductions under TCGA 1992, such as they are, can only be enjoyed at the time of disposal;
the only immediate limited deductions against profits are via the capital allowances regime; and
the use of capital losses is more restrictive than for trading losses.
It is understandable that some corporates might look to change the way in which they hold the land in their accounts; describe the purpose of their acquisition in their board minutes and ancillary documents; and reconsider the rate at which they turnover their developments.
Are you concerned about any recent market developments?
The use of growth share structures is commonplace in the market at present. This requires a new class of share to be created which only receives economic value once certain performance hurdles are met. Until they are met, it is arguable that the other classes of ordinary shares in the target are preferred by comparison. This means that if a holder of ordinary shares wishes to claim or has claimed EIS or SEIS relief, the creation and issue of the growth share class may inadvertently jeopardise the availability of such reliefs.
And finally, you might not know this about me but...
I used to work for ICI plc where I became expert in – wait for it – the world carpet fibre market. No wonder a career as a tax lawyer seemed exciting.
