Author: Julian Lewis
HMRC have announced a "technical review" of BPRA legislation with a view to making their policy purpose even clearer, so that the relief will be easier for both claimants and HMRC to operate. Perhaps this should be interpreted as code for "easier for HMRC to reject claims"?
The technical note which HMRC have issued highlights a number of concerns which have emerged from their review of existing relief claims and Disclosure of Tax Avoidance Schemes (DOTAS) notifications.
The note is a somewhat curious mixture, containing some passages which seem to suggest that the law is perfectly adequate as it stands to prevent what HMRC perceives as unfair exploitation and others which are proposing to change the law to prohibit the same exploitation.
In this article, I am not proposing to summarise current law but to highlight the areas of exploitation that HMRC have identified and, on the assumption that all or substantially all the changes in law on which they are consulting will be implemented, to try and identify how the relief could still be used as a planning tool.
Areas of concern
The areas of concern identified by HMRC which they suggest may have resulted in artificial exploitation are:
The Government believes that there is a range of legislative options that would deter the artificial features that it believes have emerged in recent DOTAS notifications. These include a targeted anti-avoidance rule and certain BPRA specific measures including:
It is going to be interesting to see how HMRC seek to restrict claims on completed transactions and whether, as seems likely, they try to impute a set of rules that was not in place at the relevant time. Given the number of transactions already completed and the profession of many investors, it is highly likely that such an approach will be challenged and will end up being decided in the courts.
Until the outcome of the consultation is known and legislation brought forward it is highly unlikely that new transactions which have any similarity to those described in the consultation paper will be brought to market. That should not, however, deter all deals.
There should be no impediment to investors claiming relief for undoubted qualifying expenditure and in appropriate cases to introduce borrowing effectively to leverage the claims.
This kind of arrangement is mostly likely to be applicable when building owners are fully involved in the development and are able to introduce the property to the transaction without substantial upfront payment (for example by granting a long lease of the un-renovated property at a low rent), or where there is limited non-qualifying expenditure or the property owner is prepared to fund that expense on a non-qualifying basis.
Therefore, whilst the opportunities for deals structured to take advantage of BPRA may be more limited there should still be opportunities, especially if property owners can work in partnership with investors.
Julian Lewis, Partner, Fladgate LLP (firstname.lastname@example.org)