UK Tax Round Up - November 2018

General UK Tax Developments

Finance Bill

The Finance (No 3) Bill 2018-19 (which will become the Finance Act 2019) was published on 7 November and includes legislation to enact the changes highlighted in our UK Budget blog post ( UK Budget Blog).

Another key area covered by the Finance Bill was the final version of the legislation to introduce the extension of tax on chargeable gains arising from UK land (including companies that derive at least 75% of their value from UK land) to non-UK residents from April 2019. We covered the initial version of this legislation in our in July 2018 tax blog (UK Property Tax Blog). The final legislation now includes special provisions to deal with UK property-rich collective investment vehicles (CIVs) such as offshore property unit trusts. CIVs will generally be within the scope of the new tax charge, but can make one of two elections (a transparency election or an exemption election) subject to fulfilment of certain conditions. In one respect, however, investors in CIVs may be treated less favourably than those investing in non-CIV property holding companies. If the CIV is UK property-rich (i.e. it derives at least 75% of its value from UK land), an investor selling a stake in the CIV will be subject to UK tax regardless of the size of the investor's stake in the CIV. By contrast, there will be a 25% ownership threshold for payment of the tax on the disposal of shares in a non-CIV UK property-rich company.

UK Case Law Developments

Deemed UK trade relevant for double tax treaty rights

In Fowler v HMRC, the Court of Appeal (CA) has decided, on a split decision, that the UK could not charge tax to a resident of South Africa (Mr Fowler) who had carried out diving activities in UK territorial waters under a contract of employment by reason of the combined effect of the UK's tax laws treating his activities as the carrying on of a trade in the UK and the terms of the UK-South Africa double tax treaty.

In addition to the relatively narrow point in issue, the case provides an interesting illustration of how the natural consequences of a deeming rule should be given effect in other relevant tax provisions.

Although Mr Fowler was held to be an employee, rather than self-employed, as a matter of fact, section 15 ITTOIA 2005 states that the performance of duties of diving employment is treated for income tax purposes as the carrying on of a trade in the UK.

The question at issue was whether those words of the statute that deemed there to be the carrying on of a trade meant that his income...