Brexit has hit property development hard. Homes have failed to sell and agents are recommending drastic measures ...
This happened to a company called Hopscotch Limited though it was on a far grander scale than you'd expect. They had a makeover cost of £1m for a residential property that had been valued at £13.5m before any improvements.
They paid it for 2013/14 to 2015/16, but claimed relief for 2016/17 and 2017/18 while the improvements were taking place. The company believed it was carrying on a property development trade, but HMRC disagreed. The tribunal looked at what would be considered a property development trade as it would have implications for other property owners.
Hopscotch's argument was that even though the redevelopment was a one-off, it was still a property development trade, which the tribunal accepted.
However, HMRC argued that the company had not prepared a business plan or even a financial forecast for the supposed property development trade in respect of it being done in the UK and the company was registered in the British Virgin Islands. The tribunal concluded that this was not a typical property development trade, they simply maximised the value of the investment and ATED relief was not due.
If you're a property owner, you'll be relieved to know that a makeover (even one that costs £1m!) will not make you subject to income or corporation tax on the proceeds from the eventual sale of the property.
However, as a word of warning, if you are subject to Annual Charge for Enveloped Dwellings in respect of your properties, you need to be very cautious about which reliefs you claim.
If you'd like to find out more about anything I've written here, do call me on 01908 774323 or leave a comment below and let's see how I can help you.