Private landlords face a very different playing field come April, with the introduction of a barrage of measures including a 3% uplift of SDLT, lowering of the SDLT thresholds, tapering of mortgage interest relief not to mention a reduced 30 day window for payment of CGT, without the correct planning tax liabilities are certain to rise.
Below we examine each aspect of the changes being introduced.
Higher rate SDLT
With the housing market in a price bubble, the Chancellor is looking at ways to bring the market back to reality, alongside plans to increase the stock of housing, the SDLT measures below aim to hit Landlord yields, making property a far less attractive investment:
- higher rates of SDLT for residential property, along a with a 15% SDLT rate for enveloped property;
- a new capital gains tax charge for non-residents disposing of UK residential property;
- the annual tax on enveloped dwellings, along with the related capital gains tax charge; and
- limitations on interest deductions for buy-to-let residential property, the impact of which will be felt more fully in the next few years.
It came as no surprise that the November 2015 autumn statement featured a further measure targeting residential property, the effects of which will be felt in just a few months.
The HMRC consultation document has now been published, shedding light on this much-feared measure and raising a few questions in the process.
From 1 April 2016, the government will introduce higher rates of SDLT on purchases of additional residential properties. The consultation document envisages that the higher rates of SDLT will apply to the majority of such purchases in England, Wales and Northern Ireland if, at the end of the day of the transaction, individual buyers own two or more residential properties. Scotland has its own land and buildings transaction tax regime.
The higher rate of SDLT will not apply if the purchaser is replacing their main residence. So individuals purchasing their first home, or those simply moving from one main residence to another (even if they own a second residential home), should not be affected. However, for those purchasing buy-to-let properties and second homes, it is a different story.
Further, the higher rate will apply if the residential property being bought in England, Wales and Northern Ireland is in addition to one owned anywhere else; for example, a holiday home in Scotland or France.
The rate and threshold
As the proposals stand, the rates are higher in the sense that the current rates of SDLT will increase by 3% if additional properties are purchased with a value in excess of £40,000 hardly a difficult threshold to breach. The additional rate will apply to the entire property, not just the amount that exceeds £40,000.
The consultation addresses some of the initial concerns raised about the definition of additional. When the proposals were announced, panic ensued when contemplating the situation of a home owner taking out bridging finance to purchase a new home before selling their current property. They could, therefore, be classified as purchasing an additional property. The consultation proposes that in such a situation a purchaser would be caught by the new rules. However, if they dispose of their old home within 18 months of acquiring the new one, they will be entitled to apply for a refund of the additional SDLT paid.
New homes and first properties
Concerns were also raised when imagining the situation of a couple buying their first joint property together, with each currently owning their own individual property. Will they be liable to pay the additional rates of SDLT on the purchase of their new home? The consultation states that if, at the end of the day of the transaction, any of the joint purchasers has two or more properties and they are not replacing their main residence, the higher rates will apply to the entire consideration for the transaction.
When the higher rates were announced it was widely speculated that the draftsman would draw inspiration from only or main residence relief, allowing the individual to elect which of the properties is classed as the main residence and which the additional property.
The consultation explicitly rules out the possibility of such an election, opting for disparity between the SDLT treatment of residential property and the capital gains tax treatment. Instead, the test will be one of fact.
SDLT filing date
In another shake-up to the SDLT regime, the government will also reduce the time frame in which the payment and return are due. The government will consult on this, with the current proposals suggesting a reduction from 30 days from the effective date of completion to a mere 14 days.
Capital gains tax filing date
As if the proposed SDLT filing amendments were not enough, the capital gains tax changes will come as a real shock for some. From April 2019, the deadline for the payment of capital gains tax on disposals of residential property will be brought forward to 30 days after disposal. This represents a dramatic reduction from the current timeframe.
There is certainly a raft of changes coming in 2016 and beyond for property taxation, all of which have the potential to make a significant impact on future property transactions.
Are you ready?
We provide tax advisory services through to full compliance services for Landlords and investors. With in integrated Legal support, Chartered Accountants and Chartered Tax Advisors, based in both Canary Wharf and Brentwood, we can ensure you are prepared for these changes, contact us today for a free no obligation consultation.