UK Law and Practice Contributed by: Colin Rodrigues and Harminder Sandhu, Hawkins Hatton Corporate Lawyers Ltd
2.5 Typical Representations and Warranties
This change is affecting investment by landlords in buy-to-let properties. In April 2023, the rate of UK corporation tax on income and gains increased from 19% to 25% for companies with profits in excess of GBP250,000. This increase will affect UK and non-UK corporate investors. This may encour - age investors to consider the UK REIT as a means of holding UK real estate. In December 2022, the UK government removed the require - ment for a REIT to own a minimum of three prop - erties, provided the portfolio contains a single property valued at GBP20 million. Further changes to REITs were proposed in 2023 to improve the tax rules, and these reforms will take effect in 2024 with the passing of the Finance Act 2024, which attained Royal Assent on 22 February 2024. One of the changes is that investors will not be treated as being “holders of excessive rights” (which can give rise to tax liabilities for the REIT) if such holders are taxed at a double tax agreement at a set rate. The annual tax-free allowance for capital gains tax (CGT) dropped from GBP12,300 to GBP6,000 in April 2023. This means that, when a property is sold, one will only pay tax on gains over this amount. This was expected to drop further in April 2024, to GBP3,000. This will discourage investors in property. Stamp duty land tax (SDLT) is also a consid - eration for property investors (see 2.10 Taxes Applicable to a Transaction ). A 3% penal rate of SDLT applies on top of the standard rate for each subsequent purchase by a purchaser who owns one or more dwellings. SDLT is also pay - able where non-residential or mixed-use land is purchased for more than GBP150,000.
In commercial property transactions, the seller is asked to provide replies to commercial property standard enquiries (CPSEs). These raise ques - tions regarding, for example: • boundary disputes and maintenance; • compliance with statutory obligations and
planning permissions; • environmental issues; • VAT position; and • capital allowances.
The answers provided in the replies to CPSEs constitute warranties provided by the seller to the buyer. The buyer’s remedies for misrepresentation are rescission and/or damages, depending on whether the misrepresentation was fraudulent, negligent or innocent. 2.6 Important Areas of Law for Investors An investor must consider proposed changes in legislation (including tax) that may impact on the financial viability of the transaction, given that an investor’s objective is to derive capital growth and/or secure income. From April 2020, new legislation has meant that a landlord will only be allowed a 20% tax credit for mortgage interest paid. This has two main implications for landlords: • if the landlord is a higher-rate taxpayer, only a 20% tax refund will be given (not the higher rate of tax paid); and • it may force landlords into a higher tax bracket, as they will have to declare the mon - ies paid on the tax return.
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