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PKF Warns Of 'Back Door Tax Attack' On Buy-To-Let Partnerships,
by Jason Gorringe, Tax-News.com, London
Friday, December 14, 2007
Accounting firm, PKF has warned that couples who let property could fall foul
of new ‘income-shifting’ tax legislation aimed at family businesses
- even if they are not set up as a company.
PKF Tax Partner Peter Penneycard pointed out on Wednesday that, as currently
drafted, an individual who transfers ownership of half of a property and the
rent generated to a spouse or partner will be subject to the income-shifting
provisions.
In such circumstances, for tax purposes, all the rent will be taxed on the
first individual. The marital status of the couple is immaterial.
Following its loss of the Jones v Garnett case on the settlements
legislation, the Government recently announced the ways in which it plans to
address income-splitting or shifting between married couples and family members.
However, the draft legislation published in the document 'Income shifting:
a consultation on draft legislation' does not restrict the rules to trading
or professional income. It simply refers to “distributions of a company,
or profits of a partnership”.
Mr. Penneycard observed that:
“Neither the draft legislation nor the draft guidance from HMRC state
that buy-to-let partnerships are excluded from the new rules. Although all of
the examples given refer to ‘businesses’, with rental income increasingly
taxed on a business footing there is a danger that the Government see these
changes as an opportunity to raise extra tax from the property market."
“Of course, this could simply be a drafting mistake and, if it is, HMRC
owe it to the taxpayer to make the point clear. However, I’m not so sure.
The trend in recent anti-avoidance legislation has been to catch as much as
possible and then for HMRC to issue guidelines, which have no weight in law,
on what the rules are targeting. If the current draft legislation goes through
un-altered, we are going to see a few interesting court cases on what constitutes
a ‘partnership’ caught by the new rules."
He concluded:
“If the Government intends to catch what is a fairly common practice
among couples letting properties, it will justifiably be accused of introducing
another stealth tax. The UK property market does not need any more bad news
at the moment and we shall certainly be seeking urgent clarification on this
point as part of the consultation process. I urge the Government to set out
clearly in the final legislation that these rules are not aimed at families
investing in a few buy-to-let properties."
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