Booming commercial property investment returns have triggered a crackdown on wealthy celebrities and investors exploiting a tax avoidance loophole.
As commercial property experts predict up to 18% returns in a rising market that seems to have fully recovered from the recession at last, HM Revenue & Customs (HMRC) is tackling investors including pro golfer Rory McIlroy who have tried to shelter their money in a specialist tax relief.
HMRC has demanded millions of pounds of tax should be repaid by three property partnerships that used the Business Premises Renovation Allowances (BPRA) on prestige developments.
BPRA offered up to 100% relief on capital spending in disadvantaged areas.
The partnerships took advantage of the scheme to develop the £10 million Titanic Hotel on Liverpool’s Stanley Dock.
HMRC argues some BPRA schemes were used for tax avoidance rather than their primary objective of funding redevelopment.
In these cases, accelerated payment notices demanding the payment of any avoided tax have been issued.
Investors must pay the tax, but can dispute the HMRC decision by taking the matter before a tax tribunal.
Meanwhile, some property professionals are warning that although commercial property values are back to around their 2007 peak, the market may level off soon.
Aberdeen Property Trust fears that funds without large cash cushions could leave investors with their cash in limbo if the market subsides.
“Some places, especially London and the South East are expensive and this boost in property values is pushing down yields,” said a spokesman. “We are looking away from the capital and at properties with strong rental prospects because we believe rising prices will start cooling in a year or so.”
The spokesman explained that if commercial values drop, funds may find properties hard to sell and may not be able to refund investors who want to make a quick exit.
Tax Crackdown on Commercial Property Loophole – http://t.co/gjxLn3z7VX
— LandlordZONE (@LandlordZONE) February 23, 2015