A number of substantial changes to the UK residential property tax landscape have already been announced for 6 April 2020, most of which are outlined below. Further changes may be announced in the Budget, on 11 March 2020.
The resignation of Sajid Javid as Chancellor of the Exchequer last week leaves his successor, Rishi Sunak, with three weeks, or so, to put together a Budget. Sunak has been the Chief Secretary to the Treasury since July 2019, so we suspect his appointment is unlikely to result in a significant change of direction.
Capital Gains Tax (CGT)
Lettings Relief Restricted
Currently where a property was at some point an individual’s main residence, CGT relief is available on up to £40,000 of gains (per owner) in situations where the property was also let. From 6 April 2020 this will only be available where the owner is also residing in the property at the same time as the tenant (e.g. lodgers).
Private Residence Relief Restricted
Currently there is an 18 month deemed occupation period at the end of ownership which is treated as being within the private residence relief period, even if the property is not the individual’s principal private residence for that period. From 6 April 2020 this will be reduced to nine months.
CGT Payment Within 30 Days
Currently where a CGT liability arises, this is reported on the individual’s self-assessment tax return and paid by 31 January following the tax year in which the disposal was made. From 6 April 2020 a provisional calculation of the gain (if UK residential property related) will need to be submitted and an advance payment of the CGT needs to be made to HMRC within 30 days of completion. The gain will also then need to be reported on the individual’s usual self-assessment tax return (by 31 January following the tax year) and adjustments can be made at this point.
Mortgage Interest Relief Removed
The final stage of the phased removal of mortgage interest relief for residential property landlords will come into effect. From 6 April 2020 only basic rate tax relief will be available on mortgage interest suffered by landlords.
Changes for Corporate Landlords
The previously planned 2% corporation tax cut has been shelved, corporation tax will remain at 19% for corporate landlords.
Non-Resident Corporate Landlords
Non-UK resident companies which carry on a UK property business will be brought within the scope of corporation tax from 6 April 2020 (currently these non-resident corporate landlords are within the scope of income tax). This will align the tax treatment of non-UK resident and UK resident companies.
Annual Tax on Enveloped Dwellings (ATED)
We expect a small increase to the ATED chargeable amounts from 1 April 2020 (roughly in line with inflation), as is usual. There is relief from the ATED charge where properties are let out on a commercial basis to third parties.
Rumoured Stamp Duty Land Tax (SDLT) Changes
No official announcements are expected before Budget day in connection with SDLT, but it is widely anticipated that a 3% surcharge for overseas buyers of residential properties will be introduced.
No clarity has been given as to whether the 3% charge would be in addition to the existing 3% surcharge for buyers of ‘additional’ properties (anywhere in the world). The further charge could mean a top SDLT rate of 18% rather than 15% for some non-resident buyers.
Previously changes to the SDLT system have often been brought in overnight, affecting all transactions which exchange contracts after midnight on Budget day.
A previous plan to overhaul the SDLT system – raising the threshold for paying it from £125,000 to £500,000 at the same time as lowering the top rate from 12% to 7% – was dropped from the Conservative manifesto, but could be resurrected… we will have to wait and see on this one.
Rumoured “Mansion Tax”
Some Treasury officials are understood to be keen on introducing a ‘recurring’ wealth tax that would primarily affect properties situated in London and the South East.
This may take the form of an annual levy or an additional higher level of council tax for the most expensive properties. Again, we will have to wait and see what is announced in the Budget.
Sean Bannister comments: “The property tax landscape remains complex and frequently subject to change. Those looking to acquire, retain or dispose of UK residential properties, whether rented out or used personally, should seek tax and legal advice to ensure they are fully aware of the consequences.”
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