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Transactions in land: hello renewables

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Everyone thinks they know what the transactions in land rules (in CTA 2010 Part 8ZB for companies) were supposed to catch.
There was after all a technical note published ahead of the legislation, describing how it was meant to achieve equality between UK and offshore land developers and make sure any naughty builders pretending to construct buildings from offshore were brought within the charge to tax.
And most people will be aware that the rules were broadened in scope to catch as trading income not only direct property development but also any disposal of a corporate envelope inside which land has been developed.
But here is an interesting question for you: what stops the sale of renewable project companies from falling within the rules? The answer, much to my surprise, appears to be absolutely nothing.
Renewable projects – especially solar and wind – which reach the development stage are typically sold as oven-ready. A piece of land will be acquired within a special purpose vehicle, the solar panels or wind turbines installed and connected to the national grid, and then the project company will be sold on to a longer-term investor, where it will sit happily generating trading income from electricity for the next decade or so.
But that’s not a sale of enveloped land, I hear you cry; that’s a sale of a trading company. Except the new rules are so widely drafted, it is (technically) capable of being a sale of enveloped land. 
The rules cover disposals where a special purpose vehicle derives at least 50% of its value from land in the UK and there have been arrangements with a main purpose of developing the land and realising a profit from an (indirect) disposal of the property. Land, crucially, is defined in CTA 2010 s 356OR(1)(a) to include both buildings and ‘structures’ on that land.
‘Structures’ is not defined, either in the legislation or HMRC’s guidance notes. Given the wide scope of the legislation, there is nothing in the law itself or HMRC’s guidance to prevent the rules from applying to a sale of, say, a wind farm company, where, in common parlance, a ‘structure’ (here, a wind turbine) is developed on land and the company is then sold on. 
If such disposals do fall within the legislation, the effect could be catastrophic for the industry because the gains on the share disposals would be treated as trading income, and therefore no capital gains relief (notably the substantial shareholding exemption) would be available to mitigate the tax charge.
One could argue that the value in the project company is not in the turbines or panels themselves but in their electricity generation, i.e. the bulk of the price paid by an investor is the enterprise value of the grid connection, not the kit. But the kit (and the real estate on which it sits) does itself have value, so that limits the problem to an argument with HMRC over valuation; it does not get you out.
The only easy way around this is to adopt a purposive construction of the term ‘structures’:
  1. Drawing an analogy with the capital allowances regime, in this context, wind turbines are considered to be plant and machinery, not ‘structures’, within the definition of CAA 2001 s 22. This is not entirely conclusive. The definition in s 22(3)(a) is with reference to fixed structures and nothing attributes the s 22 definition across to the transactions in land rules – but, arguably, you would not expect wind turbines to be viewed differently in two pieces of legislation. 
  2. The policy objective of imposing the new transactions in land rules was not directed at renewable energy projects and this was not within Parliament’s intention when the rules were enacted. They simply cannot be intended to be caught, for public policy reasons.
However, the position is not without doubt, and until and unless HMRC updates its manuals, it might be a good idea to seek a non-statutory business clearance from HMRC on the point. Perhaps if we flood HMRC with endless clearance applications, it might update the manual to make its position clear. 
Eloise Walker, Pinsent Masons