127 / 132
Northern Irish law
• An additional category of ownership in Northern Ireland are
“fee farm grants”. Although it is no longer possible to create
a fee farm grant many are still in existence. They effectively
replicate the English and Welsh concept of freehold
ownership but bear some characteristics of long leaseholds,
including payment of rent and forfeiture rights.
• Whilst a significant number of concepts are familiar the
statutory regime is very different in Northern Ireland, with
much legislation dating from before 1925 still in force. In
particular there are some marked differences in the law
governing the relationship between commercial landlords and
tenants, for example, it is not possible for business tenants to
“contract out” of the Northern Irish security of tenure regime.
• Although it has a similar Land Registry system to England
and Wales a significantly higher proportion of land remains
unregistered in Northern Ireland.
TAX
Direct acquisition of a property
• The acquisition of a property (whether freehold or leasehold)
gives rise to stamp duty land tax (SDLT).
• SDLT is payable by the buyer/tenant (as appropriate).
• On a freehold acquisition a progressive rate applies starting at
0% and moving up through bands as the price increases up to
top rates of 4% on acquisitions of commercial property over
£500,000 and up to 12% on purchases of residential property
(though a higher rate of 15% may apply to a purchase of a
residential property for over £500,000 if the purchaser is a
non-natural person); there are specific rules for calculating
the SDLT payable on the rental element of new leases which
have regard to the “net present value” of the lease.
• From 1 April 2015 SDLT will cease to apply to transactions
involving land in Scotland and will be replaced by the land
and buildings transaction tax (LBTT). LBTT will apply to
transactions completing on or after 1 April 2015, even where
the transaction agreements have been agreed before then
(unless agreed before May 2012). Like SDLT, LBTT is a
progressive tax with a nil rate band and with top rates of
4.5% on commercial property over £350,000 and 12% on
residential property over £1m.
• Devolution to the Welsh Assembly of SDLT on land in Wales
is currently also under discussion.
• Value added tax (VAT) which is a form of sales tax may be
payable in addition. The default position is that the sale or
purchase of property in the United Kingdom is not subject to
VAT however a commercial property owner may opt to tax its
property so as to treat any supplies it makes in relation to the
property as being subject to VAT. The VAT rate is currently set
at 20%. Even if a property has been the subject of an option
to tax it is possible to treat its sale as falling outside the scope
of VAT if it is let to tenants provided the buyer continues
that letting business, also opts to tax and notifies the United
Kingdom tax authorities of such option (a so-called transfer of
a going concern).
• The sale and purchase of residential property is not subject
to VAT.
Acquisition of shares in a company holding a property
• SDLT does not apply to the acquisition of shares in a company
owning a property as opposed to a purchase of the property
itself. The rate of duty on the transfer of shares in a United
Kingdom incorporated company is currently 0.5%.
• VAT is not payable on a share purchase.
Holding investment property
• Property rental business profits from United Kingdom land are
subject to corporation tax or income tax at rates that depend
on the nature of the property owner: 21% corporation tax
reducing to 20% in April 2015 for United Kingdom resident
companies; 20% income tax for non-United Kingdom resident
companies; and up to 45% income tax for individuals.
• In the future different rates of corporation tax may apply in
Northern Ireland, Scotland and Wales under plans currently
being discussed to devolve more powers over taxes to these
countries.
• Exemptions from such tax are available to, for example,
charities, pension funds and sovereign wealth funds.
• Profits are calculated broadly by reference to accounts
prepared on generally accepted accounting principles but with
some detailed modifications.
• Capital allowances (tax depreciation) are available to set
off against such profits in respect of capital expenditure on
certain assets that are used in the property rental business,
particularly plant and machinery at rates of 18% per year on
the reducing balance of expenditure for non-integral features
and 8% on such balance for integral features.
• There is also an annual tax on enveloped dwellings (ATED)
that applies to high value (over £1m from April 2015)
residential properties that are owned by companies,
partnerships including companies and collective investment
schemes at flat scale rates of up to £218,200 per year for
a property worth over £20 million from April 2015, though
there are a number of reliefs and exemptions available for
property developers, property traders and property investors
who carry on their businesses on a commercial basis and with
unconnected persons.
Disposals
• Gains on disposals of properties held as investments attract
corporation tax for United Kingdom resident companies at the
rates mentioned above and capital gains tax (CGT) at the rate
of 28% for United Kingdom resident individuals, but do not
attract United Kingdom tax for non-United Kingdom residents
unless either the gains are ATED-related gains made by
sellers to which the ATED applies (in which case they attract
CGT at the rate of 28%) or the gains arise from disposals
of United Kingdom residential property from April 2015 (in
which case they will attract CGT at the rate of 18% or 28% for
individuals or trusts or 20% for companies), but with ATED-
related CGT taking precedence.
• Income profits on sales of properties acquired and held
as trading stock or developed and sold in the course of a
trade attract corporation tax at the rates mentioned above
for United Kingdom resident companies and non-United
Kingdom resident companies that trade in the United
Kingdom through a permanent establishment and income tax
at rates up to 45% for individuals.
• A new tax known as diverted profits tax may also apply from
April 2015 to a disposal of a property held as trading stock if
corporation tax or income tax has somehow been avoided in
relation to the disposal.
• Gains of a capital nature made by persons that acquire (or
develop) land with the sole or main purpose of realising a gain
from disposing of the land or anything deriving its value from
the land (when developed) may be subject to United Kingdom
income tax if their activity is not subject to United Kingdom
tax on trading profits, though non-residents may be able to
obtain relief from such tax under any applicable double tax
treaty with the United Kingdom.
127
Investors Guide to Europe 2015