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CIS for landlords

What if a landlord buys property to improve and add to portfolio, but changes mind at end?

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A landlord with a property portfolio buys a property to convert into flats and add to his rental portfolio. He pays various 'subcontractors' to undertake the work.

At the end of the conversion he decides that he is going to sell the flats rather than rent them.

What are readers views as to the CIS omplications? Should he have registered under CIS as a main contractor, being a property developer, even though that wasn't his intention?



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Hallerud at Easter
11th Jul 2018 15:29

HMRC take:

A property investment business acquires a number of properties which it intends to let, but before letting, minor refurbishment is required to bring the properties up to a suitable standard to be able to let them. For CIS purposes we would see this as the normal activities of a property investor, and where the average annual expenditure on such activities exceeds £1m then CIS applies.

The property investment business then acquires a large dilapidated hotel to add to its portfolio, and decides to convert the building into a series of flats which it will then individually let out. As a result, substantial development is required to the property to change the building to its new use. In respect of this particular development and contract we would regard the property investment business as having taken on the mantle of a mainstream contractor as its business activity is now that of construction operations.

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By Justin Bryant
16th Jul 2018 11:44

Consider two individuals (who are not builders etc.) who jointly buy and refurbish/decorate/modernise a house and pay third party professionals to do so and do no work themselves due them lacking any relevant skills or knowledge or any inclination or desire to do such work. One of the individuals decides from the outset that once the work is complete he will rent it and the other, in contrast, decides to sell it as soon as possible (at a profit). In the end, the renter buys out the seller’s 50% share and rents it. Per HMRC’s manual, the renter (an investor under income tax rules) is not within CIS, but the seller (a developer under income tax rules) is. Clearly, HMRC’s simplistic investor/developer distinction in their online CIS manual must be the wrong test under the CIS legislation, as their activity is identical re construction operations re the property. Moreover, the renter could buy out the seller’s 50% share before a significant amount of work has been done and yet on a simple reading of HMRC’s online CIS manual the renter would still be outwith CIS as a mainstream contractor and the seller would be within CIS as a mainstream contractor, even though the seller has overseen only an insignificant amount of work both in absolute terms and compared to the renter.

If HMRC say in the above example that it is correct that CIS only applies to the seller and not to the renter despite their activities under the CIS legislation being at most identical (other than the act of merely selling rather than renting - which is not a construction operation itself of course and so should be irrelevant) and possibly substantially less so in the case of the seller, then to my knowledge there is no case law or legislative support for that view and it is also contrary to common sense and that view is not stated explicitly in the CIS online manual as being invariably correct or correct in such example situations as descried above. This is not surprising since that CIS guidance in the online manuals is simplified for property developers proper (and I do not disagree with it in that simplified context).

There is similar CIS criticism on the Taxationweb website. See:

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By Justin Bryant
07th Dec 2018 10:27
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