The government is to close a loophole that allows buyers of new buildings to avoid paying VAT.
Chancellor Gordon Brown in his pre-Budget speech on Wednesday said that new legislation will be introduced “immediately” to block the loophole.
The move will boost the Chancellors coffers by a minimum of £165m a year.
VAT is payable on the purchase of the freehold of a newly constructed commercial building during the first three years of the buildings life when, according to European law, it is still considered “new”.
But some companies delay the bulk of the payment until after the three-year period to avoid paying VAT.
Greg Sinfield, tax partner at law firm Lovells, said: “The Chancellor has said what the problem is, but he hasnt said how he will tackle it.”
The legislation will end avoidance schemes such as that used by RBS in its purchase of the Younger Building in South Gyle, Edinburgh. The company paid instalments of £2m over three years, and made a tax saving of 80%, but was taken to a VAT tribunal in August for using this scheme. RBS won the case, because there was no evidence that the scheme had been set up to avoid paying tax.
The Chancellor also warned that the government would “take steps” to address escalating house prices. A spokesman for the Treasury said that even though the Chancellor had not directly mentioned an increase in stamp duty, this had not been ruled out.
See this Saturday’s Estates Gazette for the full version of this story.
EGi News 29/11/02
