For finance leaders in highly acquisitive property businesses, the tax landscape is moving faster than many realise. HMRC has stepped up its focus on how property businesses classify activity – whether it is trading or investment – and this distinction can have major implications for how you structure Special Purpose Vehicles (SPVs), hold assets and plan developments. A model that worked perfectly five years ago may now expose you to unexpected tax liabilities or missed relief opportunities.
The trading vs investment line is getting sharper
Historically many property groups operated with a flexible definition of their activities, switching between holding assets long-term and disposing of them for profit. HMRC’s increased scrutiny means they are now looking much more closely at your stated intentions and actual behaviour. The classification affects:
- SPV structuring: different tax treatments apply to entities set up for trading versus investment
- Tax relief: eligibility for reliefs like the Substantial Shareholding Exemption can hinge on whether the company is deemed to be trading
- Exit tax outcomes: the classification can influence the rate of Capital Gains Tax or Corporation Tax on disposal
Businesses need to ensure their business model and documentation align with how the business operates, not just how it is described in board papers or tax returns.
Impact on Stamp Duty Land Tax, VAT and Corporation Tax
Stamp Duty Land Tax (SDLT) reliefs have come under the spotlight with HMRC tightening interpretations around mixed use properties and corporate acquisitions. Deals that once qualified without challenge may now be queried in detail, potentially delaying transactions or increasing costs.
VAT treatment of development activities remains a minefield, especially where residential and commercial elements are mixed. Incorrectly recovering input VAT or misapplying zero-rated rules can lead to large repayments and interest charges.
Corporation Tax planning is also affected, particularly for groups using multiple SPVs. Loss relief, group relief and Corporation Tax rates mean the way profits and expenses are allocated across entities matters more than ever.
When long-standing approaches stop working
One of the biggest risks for businesses is assuming that established tax strategies will continue to be effective. Legislative changes, case law developments and HMRC guidance updates can erode the benefits of historic structures without warning. For example:
- SPVs created for one-off developments may now trigger VAT or SDLT issues if retained longer term
- Offshore holding companies that were once tax efficient may now create UK tax exposure under anti-avoidance rules
- Group structures designed to optimise loss relief may no longer be viable under the new corporate interest restriction rules
These changes do not always make existing structures wrong, but they can make them less efficient and, in some cases, riskier from a compliance standpoint.
What finance leaders should do now
The key is to stay ahead of HMRC’s evolving approach by building regular checks into your tax strategy. Start by reviewing all active SPVs and asset-holding structures against current guidance and case law, making sure they still achieve the outcomes you expect. VAT and SDLT treatments should be stress-tested on both live and pipeline projects to avoid unpleasant surprises that could derail a transaction.
Corporation Tax efficiency also deserves a fresh look, particularly given recent rate changes and shifting rules on loss relief. Documenting the commercial rationale behind every structuring decision is another essential step, providing clear evidence to support your position if HMRC raises queries later. And because the property sector carries unique complexities, engaging advisors with specialist knowledge can help you spot risks and opportunities early, giving you greater confidence to move quickly when the right deals arise.
Proactive tax planning as a competitive edge
In a competitive property market, the ability to move quickly on deals is a differentiator. Avoiding unexpected tax disputes or delays at completion not only protects margins but also builds credibility with investors and partners. A future-proofed tax strategy gives you confidence that your structure is both compliant and optimised, and that your business model is still fit for purpose in a changing regulatory environment.
Future-proof your tax strategy with My Tax Partner
The risks and opportunities highlighted here are exactly the kinds of issues My Tax Partner helps property finance leaders manage. Acting as your embedded strategic Head of Tax, we bring deep sector expertise to ensure your structures remain compliant, efficient, and aligned with today’s HMRC expectations. From stress-testing your business model to documenting rationale for complex decisions, we give you confidence that your tax position won’t derail deals or erode investor trust.
With regular agenda-led reviews, we surface risks early, adapt strategies to new legislation, and free up your team to focus on growth opportunities. My Tax Partner turns tax from a potential obstacle into a competitive edge, keeping your property business model fit for purpose in a fast-changing environment. If you want to check in on your own position, reach out and let’s talk.
