Tag Archive: property tax

1. British Columbia Proposes New Home Flipping Tax

   22 March 2024 3:02 pm Leave a Comment

   British Columbia Proposes New Home Flipping Tax – Introduction

   In a bid to address the housing supply crisis, British Columbia (BC) has announced plans to introduce a provincial legislation that targets real estate investors with a new home flipping tax.

   Aimed at discouraging quick resale for profit, this tax could significantly affect the dynamics of property transactions in the province.

   Understanding the Home Flipping Tax

   Scheduled for homes sold from 1 January 2025, onwards, the proposed tax specifically targets properties resold within two years of acquisition.

   Here’s a breakdown of how it’s designed to work:

   • The tax applies to residential properties, zones for residential use, and rights to acquire such properties.
   • A 20% tax rate on the profit generated from the sale of these properties within the first year (365 days) post-purchase.
   • The tax rate decreases to zero for sales occurring between 366 to 730 days after purchase, though details on the declining rate mechanism remain unspecified.

   Examples of the Potential Impact

   Example 1

   Mrs Miggins bought a property  on 1 February 2024 and sold on 1 January 1, 2025.

   Mrs Miggins will incur a 20% tax on sale proceeds, as the sale falls within the first 365 days.

   Example C

   Mr Blackadder bought a property on 1 February 2024 and sold on 1 April 2025.

   This falls into the second year post-purchase, attracting a tax rate lower than 20% (though not yet determined.

   Example 3

   Baldrick purchased a property on 1 May  2023 and sold on May 15, 2025.

   Baldrick escapes the tax entirely as the sale falls outside the two-year window.

   Exemptions to the Tax

   Notably, the legislation considers life changes and other circumstances, providing several exemptions to the tax.

   These include cases of divorce, job relocation, and personal safety concerns, among others.

   Additionally, selling one’s primary residence may allow an exclusion of up to $20,000 from taxable income generated from the sale.

   There are also provisions for exemptions in situations enhancing the housing supply or involving construction and development activities.

   Interaction with Canada’s Federal Residential Property Flipping Rule

   It’s crucial to note that the proposed provincial tax will complement, not replace, Canada’s existing Residential Property Flipping Rule.

   This federal rule already treats income from properties sold within 365 days as taxable business income, disallowing capital gains exclusion rates or the Principle Residence Exemption.

   Consequently, properties flipped within the first year post-purchase in B.C. will be subject to both federal business income tax and the provincial flipping tax.

   The Way Forward for Investors and Developers

   The introduction of this new tax undoubtedly represents as potential extra cost of doing business for real estate investors and developers, They will, of course, need to recalibrate their strategies.

   Conclusion – British Columbia Proposes New Home Flipping Tax

   The new tax is clearly designed to  curb speculative buying and support the local housing market.

   However, those who are active investors and developers, will need to consider how these new tax proposals will effect their activities

   Final thoughts – British Columbia Proposes New Home Flipping Tax

   If you have any queries about this article on ‘British Columbia Proposes New Home Flipping Tax’ or Candian tax matters more generally, then please get in touch.

    

2. Tax on Transfer of Real Estate in Albania

   28 February 2024 5:17 am Leave a Comment

   Tax on Transfer of Real Estate in Albania – Introduction

   The Ministry of Finance and the State Cadaster Agency recently issued an important joint instruction titled “On Income Tax from the Transfer of Real Estate,” which was officially published on January 17, 2024.

   This instruction aims to provide clarity on the application of capital gains tax arising from real estate transactions, particularly focusing on differentiating the tax obligations of individuals and entities engaged in the sale of real estate.

   For Tax-Registered Legal Entities and Individuals

   Entities and individuals conducting real estate sales as part of their business operations are exempt from personal income tax on these transactions. Instead, they are subject to:

   • The local real estate transfer tax, as per law no. 9632/2006 “On Local Taxes System.”
   • Corporate income tax or personal business income tax on sale revenues, as dictated by law no. 29/2023 “On Income Tax.”

   For Non-Tax-Registered Individuals

   Individuals not registered as taxpayers will incur a 15% personal income tax on the capital gains from real estate transfers.

   The capital gain is calculated as the positive difference between the sale and purchase prices of the property. In instances where the sale results in a loss, the capital gain is considered zero.

   Definition and Calculation of Capital Gains

   The instruction defines “act of transfer of real estate” to include sales, exchanges, donations, inheritances, and ownership waivers.

   The sale price for tax purposes is the higher of the agreed transaction price or the reference price set by the Council of Ministers.

   Additionally, a 1% annual depreciation from the date of ownership acquisition applies to the reference prices, capped at 30%.

   For buildings (excluding apartments and constructions legalized post-facto) with depreciation over 50%, the tax value must be assessed by licensed real estate appraisers, and this value is recognized for the specific transaction by the State Cadaster Agency.

   Tax Payment and Registration

   Real estate transfers must be registered with the State Cadaster Agency post-tax payment by the seller.

   In cases of donation, inheritance, or property renunciation, the tax is paid by the recipient before registration. Documentation proving tax payment is required for registration.

   Tax Exemptions

   Exemptions are available for:

   • Donations and inheritances to direct relatives and dependents.
   • Donations and inheritances to non-direct relatives or individuals up to certain thresholds for movable and immovable properties.
   • Property transfers stemming from compulsory co-ownership as per law no. 7501 “On the land.”

   Implications and Next Steps

   This instruction underscores the government’s commitment to ensuring transparency and fairness in the real estate market, particularly by imposing tax obligations that reflect the nature of the transaction and the parties involved.

   Real estate owners, potential buyers, and legal heirs should familiarize themselves with these new regulations to ensure compliance and make informed decisions regarding property transactions.

   Tax on Transfer of Real Estate in Albania – Conclusion

   Entities and individuals involved in real estate transactions should consult with legal and tax professionals to navigate these changes effectively and align their transaction strategies with the new regulatory framework.

   Final thoughts

   If you have any queries about Tax on Transfer of Real Estate in Albania, or Albanian tax matters in general, then please get in touch.

3. The changing skyline of UK property taxes for overseas investors

   1 December 2023 7:02 am Leave a Comment

   UK property taxes for overseas investors – Introduction

   The UK has long been an attractive destination for overseas high net worth individuals (HNWIs) seeking to invest in residential property.

   Historically, many of these investors utilised offshore companies to hold their UK real estate, benefiting from various tax advantages including the ability to completely shelter the underlying UK property from UK inheritance tax.

   However, someone who was thinking of following such a tried and tested route and had not had tax advice for over a decade would be in for a foundation shattering shock!

   This is because former Chancellor George Osborne identified bricks and mortar (or should that be glass, steel and cement as well) as ripe for the picking when it came to tax raising potential.

   In this piece we outline some of the key changes which have drastically altered the skyline for overseas property investors in the UK.

   The Annual Tax on Enveloped Dwellings (“ATED”)

   Way back in 2013, the UK introduced what was then an unusual new tax called ATED. As the name implies, it’s an annual tax and it is levied on high-value residential properties held in so-called corporate “envelopes”. These were typically offshore companies.

   When first introduced, it triggered on properties with a minimum market value of £2m. However, never one to look a gift cash cow in the face, the government has successively lowered the threshold for ATED over the years.

   It now applies to all residential properties worth more than £500k held in corporate envelopes. So, this is not something that is only limited to properties in Belgravia or Mayfair.

   There are, however, important reliefs from ATED that might be secured depending on the circumstances.

   For example, one key relief is where the enveloped properties are (1) rented out commercially to (2) third parties as part of property rental business.

   There are other exemptions for commercial activities such as property development and for guest houses / B&Bs.

   Capital gains tax (“CGT”) for non-residents and UK real estate

   One of the basic tenets of UK CGT is that, under first principles, it is only applicable to UK residents. However, there are a number of anti-avoidance provisions that dilute this so it is far from being a hard and fast rule.

   However, and we can thank Mr Osborne again, April 2015 saw a limited extension to the jurisdictional net for CGT with the introduction of something with the catchy title of Non-Resident CGT (“NRCGT”).

   This means that anyone selling or transferring ownership of a UK residential property is now obliged to pay CGT on any increase in its value from 6 April 2015. This is regardless of their UK tax residence status, unless reliefs such as Principal Private Residence Relief applies.

   Moreover, since 2019, this charge cannot be avoided by selling shares in a company which holds UK property.

   This is because subsequent rules were introduced that subject the sale of shares in “property rich” companies to CGT.  A property rich company is one which derives at least 75% of its value from UK property.

   Transitional rules applied which would effectively provide for the rebasing of assets at 2015 prices, which ameliorated some of the worst effects.

   But any new investors should be aware of the fact that gains in UK real estate will now be firmly within the UK CGT net.

   Stamp Duty Land Tax (SDLT)

   From 2012 onwards, the rates of UK’s land transfer tax – in the form of SDLT – have spiralled increasingly skywards.

   In addition, the rules have become more complex and different categories of purchaser have been identified as ripe for taxation.

   For example, when ATED was introduced, a new penal rate (it was penal at that time!) of 15% was introduced on the purchase of residential property by corporate entities.

   Subsequent tax changes have included the introduction of a 3% surcharge for those who have the temerity to already own a residential property anywhere in the worldwide.

   More recently, an additional 2% SDLT surcharge for non-resident purchasers. Again, little more than a cash grab from those who are unlikely to have an impact at the polling booth.

   These new rules significantly increased the transaction cost for foreign investors buying UK property and really need to be factored into the economics of any prospective purchase.

   Inheritance tax (“IHT”)

   Perhaps the death knell for classic property holding structures were the changes to the IHT excluded property rules that were introduced in 2017, along with the other significant changes to non-dom taxation.

   Rules now apply which broadly have the effect that, if one looks all the way down the structure, and it contains UK bricks and mortar, then the person with a beneficial interest in that property will not escape IHT on its value.

   Further, such property subject to a trust may also be subject to the 10 year charge as and when it comes around.

   Effectively, the excluded property rules are switched off.

   As such, there is no longer any IHT advantage in holding UK property in an offshore company. In fact, doing so may even result in a higher UK tax exposure if ATED applies.

   Transparency measures

   In addition to the tax measures set out above, the UK has also implemented various transparency measures.

   These measures require offshore companies to disclose their beneficial ownership information.

   This is as follows:

   • Corporate structures: There is now a requirement to register the ultimate beneficial ownership on the UK’s publicly accessible Register of Overseas Entities (ROE);
   • Trust structures: individuals holding properties through a trust may also be required to be registered as beneficial owners on HMRC’s Trust Registration Service (TRS).

   Conclusion

   It should be clear from the above that the legislative landscape in respect of UK residential property has changed enormously over the last 10 years.

   Although not usually an issue at the forefront of buyers’ minds, HNWIs wishing to invest in UK properties should seek tax and structuring advice at the outset of any transaction.

   Final call

   If you have any queries about this article regarding UK property taxes for overseas investors, or UK tax matters in general, then please get in touch.