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Investing in commercial property may seem intimidating at first, but with the right information and advice, it can offer lucrative opportunities. Unlike residential properties, commercial properties, including student and hotel accommodations, have distinct tax implications.
Understanding these differences is crucial for maximising the advantages they offer to investors. This comprehensive guide highlights key tax considerations that should be taken into account when venturing into commercial property investments.
Just like residential properties, the purchase of commercial property attracts Stamp Duty Land Tax (SDLT), which must be paid within 14 days of completing the sale. There are no additional rates for subsequent purchases or if you already own residential property.
The SDLT rates for commercial property are as follows:
| Property Value | Stamp Duty Land Tax Rate |
| Up to £150,000 | Zero |
| £150,001 – £250,000 | 2% |
| Any portion above £250,000 | 5% |
When it comes to income derived from letting commercial property, taxation applies. Valid revenue expenses, including letting agents’ fees and loan interest, can be deducted. The specific tax rates depend on the structure of the purchase and whether it is held by an individual, a trust, or a company.
When it comes to the sale of commercial property, VAT regulations play a significant role. While commercial property sales are generally exempt from VAT, property owners have the option to charge VAT at the standard rate of 20%. This decision would extend the VAT charge to all associated supplies, including rent.
New commercial properties, those less than three years old, are subject to VAT at the standard rate. However, student accommodation, including halls of residence, is exempt from VAT, provided the necessary certification requirements are met.
In the case of hotel accommodation, VAT is typically applicable unless a long lease is granted for another party to operate it as a hotel business, or the property has opted to tax. Investors looking to purchase hotel rooms or suites for investment purposes should expect this arrangement to be in place.
Given the complexity of VAT matters, seeking professional advice is highly recommended when navigating commercial property purchases.
When it comes to commercial property investment, choosing the right legal structure is a significant decision for property investors. There are four main ways to invest:
Each option carries different tax implications that can have a significant impact. Let’s briefly examine the tax considerations associated with each option.
Most investors prefer to buy commercial property directly in their own name, as it offers certain advantages. One significant benefit is the potential eligibility for special capital gains tax treatment when selling the property.
This treatment, known as “business asset taper relief,” allows for three-quarters of profits to be tax-free after just two years. It serves as an excellent capital gains tax shelter, with a maximum tax rate of 10% and potentially even lower rates thanks to the annual capital gains tax exemption.
However, there is a limitation to qualify for business taper relief. If the property is let to a quoted (stock exchange listed) company like Vodafone, you won’t be eligible. While it may seem appealing to have a reliable tenant like a large brand, this choice would result in the less favourable non-business asset taper relief. This relief only exempts 5% of profits after three years and 40% after a decade.
When it comes to rental income, there are no concessions. Income tax rates of 22% or 40% apply, depending on whether you’re a basic-rate or higher-rate taxpayer. Therefore, alternative investment strategies should be considered if protecting rental income is a priority.
While minimising taxes is important, it’s equally crucial to focus on generating profitable returns. Finding the right balance between tax optimisation and income generation is key for successful commercial property investment.
Using companies as a legal structure for property investment has gained popularity due to lower corporation tax rates compared to personal tax rates. If you choose to invest through a company, your tax implications may differ from those of a personal investor.
With rental income, you can benefit from lower tax rates, even as low as 0%. For instance, if you earn £15,000 in rental profits, the first £10,000 will be tax-free, and the remaining £5,000 will be taxed at 23.75%, resulting in an effective tax rate of just 8%.
However, it’s important to consider that companies don’t qualify for the generous business taper relief available to direct investors when selling property. Instead, companies are eligible for an indexation allowance, protecting against tax on inflationary profits, typically around 3% per year.
If you sell shares in the company rather than the property itself, you may personally qualify for taper relief, albeit at reduced non-business taper rates.
Investing through an ISA or self-invested personal pension plan (SIPP) offers a potential escape from income tax, capital gains tax, and corporation tax.
Currently, you can invest up to £7,000 per tax year in an ISA and enjoy tax-free profits on your investments, exempt from both income tax and capital gains tax.
However, it’s important to note that ISAs typically do not allow investments in property. There are a few exceptions to this rule.
To have more investment choices and flexibility, consider purchasing commercial property through a self-invested personal pension (SIPP) instead of ISAs.
Investing through a SIPP offers several advantages. Firstly, you can benefit from tax-free rental income and capital gains, as no income tax or capital gains tax is payable on your SIPP investments.
Additionally, you receive tax relief on any contributions made to your pension account. This means you can effectively purchase property at a discounted rate of 40%.
Business owners particularly find commercial property SIPPs appealing, using them to acquire premises for their companies. The company would then pay rent to the SIPP, allowing it to claim the expense as a tax deduction, while the SIPP itself would be exempt from tax on the rental income received.
When selling a commercial property personally, you will be subject to Capital Gains Tax (CGT) on the increase in property value. For properties held in a limited company, Corporation Tax applies to annual company profits. CGT rates for commercial property are lower than residential rates, with 10% for basic rate taxpayers (18% for residential) and 20% for higher rate taxpayers (28% for residential).
You only pay tax on gains exceeding the tax-free allowance, currently set at £12,300 (Annual Exempt Amount). Additionally, certain expenses can be deducted, including Stamp Duty Land Tax and allowable purchase and disposal fees.
Capital Allowance Relief can be claimed on moveable plant and machinery purchases for commercial properties.
However, it is often overlooked that Capital Allowances can also be claimed for fixtures within a commercial property.
These fixtures include cranes, fire alarms, security systems, heating and air conditioning systems, lifts, escalators, moving walkways, sanitary and kitchen equipment, and sprinkler systems.
Until 31 December 2021, there is a temporary provision for 100% tax relief under the Annual Investment Allowance rules for the first £1 million of capital expenditure (which will then decrease to £200,000).
When purchasing a property, it is possible to allocate a percentage of the purchase price to these items, potentially up to 25% of the original purchase and refurbishment price in some cases. This allocation can be used to offset future profits, resulting in several years of not declaring taxable profit. To benefit from this, it is crucial to document it as part of the purchase agreement.
The Budget 2021 introduced a new 130% Super-deduction First Year Allowance (FYA) that provides an additional one-third reduction in tax for expenditure on new main pool plant and machinery. Initially available only for trading companies, an amendment to the Finance Bill now allows landlords and investors to claim this Super deduction tax relief for qualifying plant and machinery.
Furthermore, the 50% Special Rate First Year Allowance (SR allowance) offers eight times more tax relief compared to the previous 6% writing down allowance (WDA) for various other plant and machinery assets.
These enhanced reliefs present an attractive opportunity for landlords, as there is no upper limit to their application.
Ready to optimise your UK tax obligations when investing in or selling commercial property?
Look no further than Tax Natives. Our team of experts is here to guide you through the intricacies and help you explore the best strategies for maximising your tax benefits. Whether it’s deciding on the right ownership structure or navigating VAT considerations, our professionals have the knowledge and experience to assist you.
Contact Tax Natives today to explore your options and ensure you make the most of your commercial property transactions.
Are you considering a move to the UK and contemplating purchasing property? Investing in real estate is a smart strategy to safeguard your capital against inflation while potentially generating a steady income through rentals.
However, before diving into the UK real estate market, it’s essential to understand the financial responsibilities that come with property ownership, including maintenance costs and taxes imposed by the state. Let’s explore the intricacies of property taxes in the UK.
Yes. Contrary to popular belief, British property owners are not entirely exempt from property taxes. While there may not be a traditional property tax, it’s crucial to remember that there are still other taxes that apply. Although these taxes go by different names, they are still closely tied to property ownership. Let’s delve into the realm of property taxation in the UK and uncover the full picture.
When it comes to property taxes in the UK, understanding the rates is crucial. In England and Northern Ireland, the Stamp Duty Land Tax (SDLT) for residential properties ranges from two to twelve percent. For properties valued at £255,000 and above, the tax rate applies. Non-residential freehold properties in this region also fall within the same two to twelve percent range, with a valuation threshold starting from £150,000 and exceeding £250,001.
In Scotland, the Land and Buildings Transaction Tax (LBTT) applies to properties valued at £145,000 ($176,500) and above. The tax rate varies between two and twelve percent, with higher-valued properties, such as those exceeding £750,000 ($912,000), falling within this range.
Meanwhile, in Wales, the Land Transaction Tax (LTT) applies to properties valued at £225,000 ($274,500) and above. The tax rate for such properties ranges from six to twelve percent, with those surpassing £1.5 million ($1.82 million) falling within this bracket.
It’s essential to keep these regional variations in mind when considering property purchases, as tax rates can significantly impact the overall cost.
Confused by the varying property tax rates across the UK? Our UK tax specialists can help keep you informed and avoid unexpected costs. Contact us today for advice on tackling UK property tax rates.
When it comes to calculating your UK property tax, several factors come into play. To simplify the process, let’s break it down into five essential questions:
By answering these questions, we can uncover the full spectrum of taxes and charges that may be applicable to your specific scenario. Whether you’re buying land, a house, a flat, or a commercial property in the UK, let’s explore the comprehensive breakdown of potential taxes and charges.
Unsure how much tax you owe on your UK property? Get a customised breakdown from one of our experts based on your property’s value, location, and ownership type. Get in touch now to get fully prepared!
When buying real estate in the UK, it’s essential to consider the stamp duty charged by the state at the time of purchase. Corporate buyers are subject to a fixed rate of 15%.
For private owners, the stamp duty rate varies from 0 to 17%, depending on factors such as the purchase value, immigration status, and whether you already own another property. It’s worth noting that the UK government recently increased the stamp duty rate for foreign buyers by an additional 2%.
Navigating the intricacies of stamp duty is vital to ensure a smooth property transaction.
To determine your stamp duty obligations accurately, refer to the table below:
| Purchase Value | Basic Rate (UK Nationals) | Rates for Additional Properties (UK Nationals) | Basic Rate (Foreign Buyers*) | Rates for Additional Properties (Foreign Buyers*) |
| Up to £125,000 | 0% | 2% | 3% | 5% |
| £125,001 – £250,000 | 2% | 4% | 5% | 7% |
| £250,001 – £925,000 | 5% | 7% | 8% | 10% |
| £925,001 – £1,500,000 | 10% | 12% | 13% | 15% |
| Over £1,500,001 | 12% | 14% | 15% | 17% |
For first-time homebuyers, properties costing less than £300,000 are exempt from stamp duty. If the value exceeds £300,000 but doesn’t surpass £500,000, the initial £300,000 is untaxed, and the remaining amount is taxed at a reduced rate of only 5%. However, if the property value exceeds £500,000, the rates for additional properties apply.
It’s worth exploring potential avenues for paying less or no stamp duty. Purchasing a freehold property, which includes the land and adjacent territory, may grant exemptions on certain portions. Consult a property expert to determine your eligibility for any reliefs or exemptions.
Use this information as a guide to calculate your stamp duty accurately and consider seeking professional advice for a comprehensive understanding of your specific situation.
When the land on which your house stands is owned by someone else, it falls under the category of leasehold ownership. This type of ownership typically incurs an additional charge known as ground rent, which averages between £50-£100 per year for residential properties.
It’s important to consider these factors, as it is possible to purchase freehold properties in the UK, where both the land and the house belong to you. Understanding the distinction between leasehold and freehold ownership is crucial when making property decisions.
Council tax is another tax associated with properties in Great Britain, payable by the current occupants of a flat or house. If the property is rented, it is the tenants who are responsible for paying the council tax. This tax is collected by the local council and contributes to the maintenance of the surrounding area.
Council tax rates vary based on the location and price range of similar properties. In Northern Ireland, rates may differ significantly, tailored to individual circumstances.
All property owners or tenants who currently reside in a property are obligated to pay council tax, except for those temporarily vacating for refurbishment purposes. Students may be eligible for discounts on council tax.
Understanding your obligations regarding council tax is important for property occupiers in Great Britain.
The Annual Tax on Enveloped Dwellings (ATED) is an annual property tax paid by companies that own residential properties in the UK valued over £500,000. Typically, this tax is paid when submitting the tax return at the end of the financial year, usually in April.
The amount of tax payable to the Treasury is determined based on the market value of the property at the time of purchase or, for properties held for an extended period, through revaluation every five years following the initial purchase.
Understanding the ATED tax is essential for companies owning high-value residential properties in the UK, ensuring compliance with the tax obligations set forth by the government.
Certain entities, such as companies, partnerships, and investment funds, may be exempt from paying the ATED tax under the following circumstances:
While we have covered taxes directly linked to property purchase, ownership, and usage in the UK, it’s crucial to be aware of other taxes that may not be property-specific but still impact your obligations. These include taxes related to property sales, rentals, and inheritance.
Understanding the wider scope of property-related taxes is essential for informed decision-making when it comes to selling, renting, or inheriting a property in the UK.
Regardless of your tax residency status, any income earned on UK territory is subject to taxation. However, as a foreign national who has purchased a UK property for rental purposes and does not intend to relocate to the UK in the near future, you can leverage a double taxation treaty to avoid paying tax twice.
By utilising double taxation treaties, you can mitigate the risk of being taxed twice on the same income, ensuring a fair and equitable taxation process across borders.
The first £1,000 of your income from property rental is completely tax-free? This is known as your ‘property allowance.’ Take advantage of this allowance to enjoy tax savings on your rental income.
In a stable economy, property prices tend to appreciate over time, and the UK is no exception. When selling your UK house or flat after a few years of ownership, you can anticipate earning a profit. However, it’s important to note that the UK government requires a portion of your earnings through capital gains tax (CGT), which is determined by the amount of capital gain.
There are two applicable rates for CGT based on the difference between the purchase price and sale price:
For individuals who have already become tax residents, CGT is paid after the end of the financial year, upon submitting a self-assessment tax return. However, non-residents and others must settle the tax within 30 days of the property purchase.
It’s worth exploring various tax reliefs and exemptions that can help reduce the tax liability or potentially avoid paying CGT altogether. For instance, selling a property with limited square footage where you have primarily resided or gifting the property to your spouse may qualify for such benefits. Consulting with a tax professional can provide further guidance in optimising your tax obligations.
In the UK, if you inherit all or part of an estate from a deceased individual, you may become subject to inheritance tax. The standard inheritance tax rate is 40%, except for spouses of the deceased. However, if you received a gift, such as a flat, from a grandfather within 7 years of their passing, it will be treated as inheritance, subjecting you to an inheritance tax rate ranging from 8% to 40%.
For heirs other than spouses, the tax-free allowance is the first £325,000 of the estate. Since 2017, direct heirs may be eligible for tax relief on inherited property where they have lived or used to live.
Despite available allowances and reliefs, the inheritance tax rate in the UK remains significantly high. We strongly advise considering proactive measures to prepare and restructure your assets, even at a young age, to mitigate potential tax burdens. Seek professional advice to explore strategies tailored to your circumstances.
Are you feeling overwhelmed by the complexities of property taxes in the UK? Don’t fret! Tax Natives are here to help. Our team of experienced UK property tax consultants specialise in navigating the intricacies of property taxation, ensuring you understand your obligations and maximise available benefits.
Overwhelmed by UK property taxes? Don’t be – our network of international tax experts is here to simplify things for you and maximise your potential savings. Get your own personalised advice on managing your property tax with confidence.
Reach out now for the ultimate peace of mind on your UK property taxes.
Singapore announced significant increases in the Additional Buyer’s Stamp Duty (ABSD) rates effective from April 27, 2023.
This move comes after perceived successes of past moderating measures which were effective from December 16, 2021, and September 30, 2022, respectively.
The increases in ABSD rates aim to prioritize Singapore citizens’ acquisition of homes for owner-occupation, dampen local and foreign investor demand for residential properties, and deter foreign investors from viewing local residential properties as an attractive investment class.
The ABSD rates for Singapore citizens and permanent residents have been increased by between 3% and 5% for purchases of their second and third residential properties.
Meanwhile, foreign investors will have to pay twice the previous rate, with ABSD being raised from 30% to 60% for any residential property purchase.
Corporations, entities that are not housing developers, and trustees acquiring residential properties will also be subjected to ABSD, which has been increased from 35% to 65%.
According to the Inland Revenue Authority of Singapore (IRAS), the following aspects of the buyer’s profile as at the date of purchase or acquisition of the residential property will determine the ABSD rate:
The new ABSD rates for acquisitions made on and after April 27, 2023, are as follows:
| Type of transaction | Rate of tax |
| Singapore citizens buying first residential property | 0% |
| Singapore citizens buying second residential property | 20% (3% increase from 17%) |
| Singapore citizens buying third and subsequent residential property | 30% (5% increase from 25%) |
| Singapore permanent residents buying first residential property: | 5% |
| Singapore permanent residents buying second residential property | 30% (5% increase from 25%) |
| Singapore permanent residents buying third and subsequent residential property | 35% (5% increase from 30%) |
| Foreigners buying any residential property | 60% (30% increase from 30%) |
| Entities buying any residential property | 65% (30% increase from 35%) |
| Housing developers buying any residential property | 35% (non-remittable), plus additional 5% (non-remittable) |
| Trustees buying any residential property | 65% (30% increase from 35%), effective from May 9, 2022 |
The IRAS has also set out a transitional provision whereby ABSD rates before April 27, 2023, will apply to buyers meeting the following conditions:
The IRAS has indicated that it will not extend the deadlines in the ABSD transitional remission rules, even in cases where the validity period of the OTP extends beyond or commences after May 17, 2023.
The ABSD increase may cause a slowdown in the real estate market as investors and buyers may be deterred by the higher stamp duty rates.
This could potentially affect developers who may face lower demand for their projects.
However, the government has stated that these measures are necessary to maintain a stable and sustainable property market in Singapore.
In conclusion, the recent announcement by the Ministries of Finance and National Development, and the Monetary Authority of Singapore, to increase the Additional Buyer’s Stamp Duty (ABSD) rates, shows the Singaporean government’s commitment to maintaining a stable and sustainable property market.
The new ABSD rates, effective from 27 April 2023, aim to prioritize Singapore citizens acquiring homes for owner-occupation, pre-emptively dampen local and foreign investor demand for residential properties, and ensure that the Singapore property market remains affordable for its citizens.
It remains to be seen how these changes will affect the property market in the long run, but the government’s proactive approach to managing the market is a positive sign for Singapore’s future economic stability.
If you have any queries relating to Singapore stamp duty increases , or Singaporean tax matters more generally, then please do not hesitate to get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.
The Underused Housing Tax Act (UHT Act) came into effect on January 1, 2022.
It requires non-Canadian owners of residential properties in Canada to file an annual return and pay a 1% tax on the property’s value.
In some cases, Canadian owners will also have obligations under the new rules.
With the deadline for 2022 approaching on April 30, 2023, residential property owners should be aware of their filing requirements and potential tax liability.
Owners of residential properties in Canada, excluding certain “excluded owners,” must file a UHT Return for each property annually, regardless of whether the UHT is payable.
Residential properties include detached houses, semi-detached houses, rowhouses, and condominium units located in Canada.
The UHT Return must be filed by April 30 of the following year, providing information on the property, ownership, and any applicable statutory exemptions.
Under the UHT Act The UHT Act defines an owner as the registered owner, not the beneficial owner, of a residential property.
This includes nominee or bare trustee corporations holding legal title for others.
Owners also include life tenants, life lease holders, and those with continuous possession of land for at least 20 years under a long-term lease.
Excluded owners, such as Canadian citizens and permanent residents (with some exceptions), publicly-traded Canadian corporations, and certain trusts, charities, and institutions, do not have to file a UHT Return or pay the UHT.
Additionally, statutory exemptions may apply based on the type of owner, occupant, availability, and location and use of the property, rendering the UHT non-payable.
Exemptions are potentially available including:
Individuals who died in the current or previous year, co-owners with a deceased owner, and those acquiring property ownership for the first time in the last nine years are also exempt, though they still need to file a UHT Return.
The UHT is not payable if the property is the primary residence of the owner, their family, or a tenant for at least 180 days in a calendar year.
Non-Canadian owners with multiple residential properties may be exempt for one designated property.
Properties unsuitable for year-round residence, inaccessible due to seasonal conditions, undergoing renovations for at least 120 consecutive days, or rendered uninhabitable due to natural disasters or hazardous conditions for at least 60 consecutive days may be exempt from the UHT.
Newly constructed properties may also be exempt under certain conditions.
Properties located in certain prescribed areas of Canada and used as a residence or lodging for at least 28 days during the calendar year may be exempt from the UHT.
The UHT is calculated as 1% of the taxable value of the property, which is the greater of the assessed value or the most recent sale price before December 31.
Alternatively, a person may elect to use the property’s fair market value, supported by a written appraisal.
Failure to file the UHT Return can result in penalties ranging from CA$5,000 to CA$10,000 and additional amounts based on the UHT payable and the duration of non-compliance.
The UHT Act includes an anti-avoidance rule to prevent people from exploiting the law to gain tax benefits, such as reducing, avoiding, or deferring the UHT.
This rule applies if a transaction is deemed a misuse or abuse of the UHT Act.
Generally, an avoidance transaction is one that results in a tax benefit but is not primarily carried out for genuine reasons other than obtaining the tax benefit.
The UHT Act takes into account specific aspects of Quebec private law, such as rent, ownership, and property.
It is essential to be aware that the terminology and meaning of some Quebec property and civil rights rules in the Civil Code of Quebec may differ from common law.
In these cases, it may be necessary to refer to Quebec provincial rules and concepts related to property and civil rights.
The deadline for 2022 reporting, on April 30 2023, is fast approaching.
As such, residential property owners should make sure they are fully aware of their own filing requirements under the new rules and any potential tax liability.
If you have any queries about the Underused Housing Act or other Canadian tax matters then please do not hesitate to get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.
The Finance Act 2021 brought significant changes to the tax liability of non-resident companies renting out property in Ireland.
This article examines the impact of these changes on non-resident corporate landlords, provides guidance on the new tax regime, and discusses the steps non-Irish resident corporate landlords must take under the new legislation.
Prior to the changes, non-resident corporate landlords were not subject to Irish corporation tax on Irish source rental income. An exception being where connected to a branch, agency, or permanent establishment in Ireland.
Instead, they paid Irish income tax at a 20% rate on taxable rental income.
To collect taxes from non-resident landlords, tenants had to deduct withholding tax (20%) on rent payments, with an exception for landlords who appointed an Irish collection agent.
In this case, the agent took responsibility for filing and paying relevant Irish taxes on the letting.
Starting in January 2022, non-resident corporate landlords now face a 25% Irish corporation tax rate on rental income, a 5% increase from before.
Additionally, new tax filing requirements were introduced for landlords and Irish collection agents.
Collection agents must register for corporation tax under a separate tax reference number for each landlord, file the corporation tax return, and pay any due taxes.
Tenants must still deduct withholding tax on rent payments to non-resident landlords, unless an Irish collection agent is appointed.
Although the treatment of expenses for landlords remains generally the same, some differences may arise under the corporate tax regime.
For example, interest deductions may now be restricted by deemed distribution rules or the new EU Anti-Tax Avoidance Directive interest limitation rule.
Transitional rules will also apply, allowing for the carry forward of unused losses or excess capital allowances and ensuring that no benefit or loss occurs from the rate change from 20% to 25% concerning balancing allowances and charges after 1 January 2022.
The effective capital gains tax (CGT) rate for non-resident landlords selling (or otherwise disposing of) Irish property remains at 33%.
However, landlords now face corporation tax instead of CGT on property disposals, which are included in the corporation tax pay and file regime.
The tax rules on development land disposals remain unchanged, subject to the CGT pay and file requirements.
The corporation tax regime applies to profits or income earned from 1 January 2022.
Thus, regardless of a landlord’s financial year-end date, a new accounting period is deemed to begin on 1 January 2022. This means that landlords without a 31 December 2022 year-end date will likely have two corporation tax returns to file for income earned in 2022.
Corporation tax returns must be filed by the 23rd of the ninth month after the end of the relevant accounting period. For example, for accounting periods ending on 31 December 2022, the filing due date is 23 September 2023.
The corporation tax liability must be paid in preliminary tax instalments during the accounting period, with a final instalment due on or before the corporation tax return filing date.
The year 2022 will mark the first tax year in which non-resident corporate landlords are subject to the corporation tax regime.
Landlords will need to seek timely advice regarding their tax liability and their filing obligations to ensure compliance with the new system of tax.
If you have any queries about the new Non-Resident Corporate Landlords in Ireland regime, or Irish tax matters more generally, then please do not hesitate to get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article
A new transfer tax, dubbed the “Mansion Tax,” came into effect on April 1, 2023, in the City of Los Angeles.
This tax, approved by voters under Measure ULA, imposes a 5.5% tax on sales of high-value real estate.
With the effective date now passed, the real estate market had been bustling, with parties attempting to finalise deals before the new tax took hold.
Currently, the documentary transfer tax rate in Los Angeles stands at $5.60 per $1,000 of value (0.56%).
This tax is based on the net value, excluding any liens or encumbrances on the property at the time of transfer.
The Mansion Tax, however, will be calculated on the gross value, inclusive of any liens or encumbrances.
The tax imposes an additional 4% tax on properties valued between $5,000,000 and $9,999,999.99, and a 5.5% tax on properties worth $10,000,000 or more.
This new tax not only affects buyers and sellers of real estate but also have implications for rental property markets, potentially leading to rent increases.
The tax applies to all types of real property sold in the City of Los Angeles, valued over $5,000,000, unless otherwise exempt. Exemptions include transfers to certain non-profit, affordable housing, and tax-exempt organizations.
On March 16, 2023, the City of Los Angeles released a list of FAQs to address general questions about the Mansion Tax.
The FAQs introduced a calculator to determine the city transfer tax due, but it does not include the county tax, which must be added separately.
Despite the FAQs, uncertainty remains in the marketplace. It is unclear whether the same city and state exemptions will apply to the Mansion Tax as they do for the current documentary transfer tax, and whether entity interest transfers resulting in a change of control will be subject to the Mansion Tax.
It is anticipated that more guidance will be released by the City of Los Angeles.
The validity of the Mansion Tax has been questioned in recent lawsuits, with opponents claiming it is an unlawful special tax that violates property owners’ equal protection rights.
The City of Los Angeles filed a memorandum supporting a motion to dismiss on March 15, 2023. The outcome of these lawsuits, both federal and state, is uncertain. However, the Mansion Tax still came into effect on April 1, 2023.
Furthermore, a ballot initiative called The Taxpayer Protection and Government Accountability Act could potentially end the Mansion Tax and similar measures.
This act, expected to appear on the California ballot in 2024, would require two-thirds of voter approval for new local special tax increases and invalidate any tax increases adopted after January 1, 2022, that did not receive two-thirds voter approval. This would include the Mansion Tax, which was passed by a margin of approximately 58% to 42%. The act, as currently drafted, does not provide for tax refunds or rebates for amounts paid under invalidated taxes.
The Mansion Tax has, and will continue to, significantly impact the real estate market in the City of Los Angeles, with effects on buyers, sellers, and rental property markets.
If you have any queries about the Los Angeles Mansion Tax or other US tax matters then please do not hesitate to get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.
Software trained to spot undeclared swimming pools has resulted in an additional €10 million of tax revenue for the French authorities.
Okay, let’s dive in!
A machine-learning tool deployed across nine French regions during a trial in October 2021 helped authorities uncover 20,356 undeclared private pools and levy additional taxes on applicable households.
Under French law, pools must be declared part of a property’s taxable value.
As such, pools can increase the value of a property – and hike the individual tax homeowners pay.
According to Le Parisien newspaper, which first reported the news, a 30-square-metre pool is taxed at €200 (£170) a year.
Google and French consulting firm Capgemini have developed an application that uses machine learning to scan publicly available aerial images of properties for indications that a swimming pool is present.
The most obvious indication is a blue rectangle in the back garden!
After identifying the pool’s location, its address is confirmed and cross-checked against national tax and property registries.
In April 2022, The Guardian reported that the software had a 30% error rate. It would often mistake solar panels for pools or miss existing pools if they were heavily shadowed or partially covered by trees.
The French Treasury said it would expand a tool across the country that it expects will bring in around €40m (£34m) in new taxes on private pools in 2023, exceeding the £24m cost of developing and deploying the software.
The tool could eventually detect undeclared home extensions and patios that are also considered when calculating French property taxes.
“We are particularly targeting house extensions like verandas, but we have to be sure that the software can find buildings with a large footprint and not the dog kennel or the children’s playhouse,” said the deputy director general of public finances, Antoine Magnant to Le Parisien.
He added, “This is our second research stage and will also allow us to verify if a property is empty and should no longer be taxed.”
According to the Federation of Professional Builders (FPP), France has the largest market in Europe for private swimming pools, with an estimated three million in existence.
This is partly due to a boom in construction during the Covid-19 lockdowns and recent heat waves.
However, the issue has been contentious this year because of the drought in France, which has led to rivers drying up and restrictions on water usage. One MP for the French Green party has called for a ban on new private pools.
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The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.
Parliament is currently discussing the draft 2023 Budget Law. Although this is yet to be approved, the draft signals a potential change to the taxation of rela estate companies in Italy. Specifically, the tax treatment of shareholdings in such companies.
Article 23 of Presidential Decree no. 917/1986 proposes new provisions regarding the ‘alienation’ of shareholdings in real estate companies by certain persons.
Specifically, the proposals relate to disposals by:
In other words, companies and entities that derive their value mainly from real estate situated within the Italian territory.
It is a provision aimed at taxing capital gains on foreign shareholdings that result, de facto, the transfer of real estate properties located in Italy.
Undoubtedly, the proposal has got its inspiration fromArticle 13, paragraph 3, of the OECD Model Tax Treaty. This is often referred to as the “land rich clause”.
The proposals could have an immediate impact on cases where the shareholder realising the capital gain:
The proposals do not apply to shares listed on a stock exchange.
Where there is a tax treaty in force, the change could apply where the tax treaty with the shareholder’s state of residence grants Italy rights of taxation in respect of capital gains on shareholdings in real estate companies.
In this respect, Italy may tax such capital gains in accordance with provisions set forth by over twenty tax treaties including the land rich clause. It is likely that the number of tax treaties that reflect this position will increase over the coming years.
If you have any queries about this article on Italy real estate companies, Italian tax matters or capital gains in general then please do not hesitate to contact us.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.
Several weeks ago, we commented on the Spanish Government’s recently proposal to introduce a Solidarity Wealth Tax.
However, this article considers new wealth tax proposals – in respect of the Net Wealth Tax and the Solidarity Wealth Tax – for non-Spanish-tax-resident individuals who hold Spanish real estate through one or multiple non-Spanish-resident entities.
It is envisaged that non-Spanish-tax-resident individuals would be subject to the Net Wealth Tax (“NWT”) when they hold shares in an unlisted entity. This would be where “at least 50% of its assets are directly or indirectly made up of real estate located in Spain”.
These new proposals would replace the current domestic provisions which historically have required non-resident individuals to pay NWT in circumstances where they directly own real estate only.
Additionally, the Spanish Government plans to bring in the Solidarity Tax (“ST”) to supplement the regional NWT. The ST will be calculated and assessed at the federal level.
The ST will be levied on non-Spanish-tax-resident individuals with a net wealth in Spain of at least EUR 3 million. It should be noted that this will include any interests in non-resident entities that own Spanish real estate
The NWT can be credited against any ST liability.
It is expected that these measures will be passed before the end of 2022.
If the new legislation is published prior to the end of 2022, then both would apply to indirect holdings of Spanish real estate held on 31 December 2022.
It is currently expected that both would have to be paid in June or July of the following year.
If you have any queries about the Spanish Net Wealth Tax or Solidarity Wealth Tax, or Spanish tax matters in general, then please do get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.
A new ruling was issued by Judge Yardena Seroussi in respect of an appeal to the Real Estate Tax Appeals Committee. The ruling concerned how luxury apartments should be taxed.
The Appeals Committee considered whether a land appreciation tax exemption should be granted to several sellers during the sale of a luxury apartment.
It was claimed by the vendors that they were entitled to the full sum of the maximum exemption for a single apartment prescribed by law.
However, the Israel Tax Authority held that the exemption applies only to sales of an entire apartment unit and not each share in a multiple ownership arrangement. Accordingly, it calculated its tax on the maximum exemption per seller—not according to their actual portion of ownership.
The owner of a single apartment is entitled to an exemption from land appreciation tax, up to the amount permitted by law.
At the moment, this amount stands at ILS 4.6 million.
It is worth noting in the case that:
The Israel Tax Authority had decided that the exemption was available in respect of the entire apartment rather than to each individual seller.
However, the Appeals Committee ruled that the exemption applied to the sale of a single apartment and therefore the exemption should be granted to each separate vendor.
This was on the basis that the sellers were not part of the same family unit
It seems quite likely the Israel Tax Authority will appeal this ruling.
If you have any queries about this Israel Real Estate Tax Appeal or Israel tax matters in general, then please do not hesitate to get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article