Jan

Landmark property investment tax ruling given on Andrew Lloyd-Webber case

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Investors who lose money on risky property investments, can now claim their losses against tax following a First-tier Tribunal ruling.

Off-plan property buyers now have more
confidence to invest in potentially risky developments after a tribunal ruled
they can claim tax relief on losses if
their investment fails.

Investors
scored a victory when the
First-tier Tribunal (Tax) ruled in favour of Andrew Lloyd Webber against HMRC for his capital gains tax
rebate claim, over the development of a luxury beachside mansion in Barbados
which was never completed.

Lord Lloyd-Webber and his wife won their legal
battle after the tax authority said they could not offset £6.25m they had lost,
for tax purposes.

Lord and Lady Lloyd-Webber invested in the Clearwater Bay
property development project in 2007, entering into contracts to buy two plots
of land and two villas, due to be part of a large holiday homes complex.

But the couple’s planned £14.3m venture failed in
February 2009 when property developer Cinnamon 88 suspended construction during
the financial crisis.

They had claimed the sums paid as capital losses, which
they’d tried to offset against other capital gains realised by them, but this
was rejected by HMRC.

The Tribunal subsequently ruled that the £6.25m had been
paid by the Lloyd-Webbers for the acquisition of their rights under the 2007
Contracts.

It agreed that relief should be allowed in these
circumstances, saying this was consistent with the “real world” approach to
capital gains and losses established by the courts.

Nick Clayton, partner at Herbert
Smith Freehills, says the
ruling is a welcome source of comfort to other investors. “The decision gives
effect to the reality of an investment in off-plan property, by recognising
that, whether or not the property is ultimately acquired, the investor has made
an investment and made a loss on it,” he says.

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