New Property Tax Designed To Close Offshore Loophole

by Jason Gorringe, Tax-News.com, London

16 October 2002

It emerged this week that the UK government is considering plugging a tax loophole used by businesses to avoid paying capital gains taxes (CGT) on property sales, just weeks after it was revealed that the Inland Revenue and Customs departments transferred ownership of their £220 million estate to Mapeley Steps, a Bermuda-based company.

Currently, foreign companies which own UK property can often avoid paying CGT when they sell said property, which leaves the way open for some UK companies to hold their land via an offshore arrangement in order to benefit from this loophole.

The Observer revealed on Sunday that the proposals currently under consideration would involve the replacement of CGT with a flat-rate 'land tax' of up to 10 per cent of the total value of a property sale. However, the tax would only apply to property used for commercial purposes.

In its report, entitled 'Treasury eyes £6bn land tax', the UK newspaper predicted that: 'a land tax could raise as much as £6 billion a year for the British Exchequer, a sum equivalent to 3p in the pound on income tax. This dwarfs the estimated £1 billion raised from CGT, which is charged at between 10% and 40% of the profits on non-residential property sales.'

Meanwhile, it also emerged at the weekend that the state spending watchdog, the National Audit Office is to investigate the Mapeley Steps deal, in order to ascertain whether it will provide value for taxpayers' money.

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