Changes to Property Taxation

We act for a lot of clients who have invested in property.  There are many reasons that prompt a client to sell a property (retirement, divorce, relocation) but when they do and they reflect on the movement in value and benefit they have had from their property, they often conclude that it was one of the better commercial decisions they have made.

Over a medium/long term time frame, the owners of property have had a good run.  The government are implementing some changes that will effect property investors and give HMRC more of the bounty going forward.

Higher rates of SDLT (Stamp Duty Land Tax) for purchases of buy to let properties and second homes

Purchasers of additional properties such as buy to let and second homes will pay higher rates of SDLT with effect from 1 April 2016. The higher rates will be 3% above current SDLT rates.

These new SDLT rates are not intended to apply to corporates or funds making significant investment in residential property and the government will shortly issue a consultation considering whether an exemption for corporates and funds owning more than 15 residential properties is appropriate.

Restriction of tax relief on interest

At present, full tax relief is available for interest on a loan used in a property business. The funds may have been used to purchase the let property, to make major repairs, or just to fund the working capital of the property business. From April 2017, tax relief on interest in property businesses (including single buy to lets) will be restricted so that by 2020, interest will not be an allowable expense in computing the profits of the business, but will attract tax relief at 20%.

Advancing the due date for settlement of tax liabilities
There were two measures announced in the recent Autumn Statement that will have the effect of advancing the due date for settlement of tax liabilities as follows:

Stamp Duty Land Tax (SDLT)

The window in which SDLT liabilities can be paid without penalty will reduce from 30 days to 14 days with effect from 2017/18. There is also going to be a consultation on other changes to the SDLT payment and filing process.

Capital Gains Tax (CGT)

Currently, UK residents pay CGT on the sale of residential properties via self-assessment and, depending upon the timing of the disposal, the CGT liability would be due for settlement between 10 – 22 months after the disposal took place.

With effect from April 2019 onwards, all taxpayers who realise a capital gain on the disposal of residential property will have to pay their CGT liability within 30 days of a transaction taking place.

In conclusion, there are some fairly significant changes on the way for property investors.  If you own property or are thinking about investing, I would say crunch the numbers and sit down with a tax advisor who can help with structure.  Certainly don’t panic, and if you agree that property is still a sound investment, do not let this slightly more aggressive tax arena curtail your plans.

If you would like to talk through some of these changes with a chartered tax advisor, please contact James Sewell on 01522 531341 or email james.sewell@wrightvigar.co.uk – we would be delighted to be able to assist you.