Investment maturing in Poland

[memkad]

Good afternoon,

In 2006 I signed 5 Preliminary Agreements with a property developer in Poland to purchase 5 apartments. I have to-date paid a 10% deposit.

A long story short, the project has had a bumpy ride with the 2008 down turn. It is now approaching completion.

In this time I have decided to not take delivery of the apartments and to instead market them and sell 'the rights' of my agreements to the future owner and thus take a profit.

A simple example of the numbers -

My total contract prices - £2,000,000.00
Agreed total sale prices - £3,000,000.00
Total profit - £1,000,000.00

I have taken advice from an International Tax Planning Lawyer in Poland and he has confirmed that as I am UK tax resident and that the transaction is not a property transaction, it is deemed as a 'transfer of rights' and therefore I would have no tax liability in Poland.

I have also taken tax advice in the UK and it is less clear.

I have been told HMRC can possibly deem it as an 'Investment' and therefore the rate would be 18% / 28% Capital gains.

I have also been told HMRC can also possibly deem it as 'a dealing' and therefore tax it at the income tax rate 20% / 40% / 45%.

Since my Polish Tax advice has deemed no Tax is due in Poland, it has raised 'questions and possibilities' that no tax would be due in UK according to my UK tax adviser and accountant.

BUT of-course they all sit on the fence and do not give me a definitive answer to any of it.

I would really appreciate your insights into this.

Thank you all in advance.

[AmanSood]

Hi Memkad

As I can see, the only way the investment would escape UK tax is if you are non-UK domiciled and if you do not bring the sale proceeds into the UK. Were you born in the UK or have you been in the UK for 15 out of the last 20yrs? If so, based on the new rules coming in from 6 April 2017 and assuming the sale is completed post 6 April 2017, then you would be deemed UK domicile and taxable on your worldwide income and you would have to declare the foreign income on your UK tax return. The question then becomes whether the income is deemed trading income (40%/45% tax) or a capital gain (28% tax) and this would really depend on the circumstances/background. The fact that you bought 5 apartments indicates that this is more of a trade rather than a capital gain but again the full facts (your occupation, intention when you bought the properties etc) would need to be reviewed in detail in order to be able to provide an opinion on how to report this on your return.

Aman