November 5, 2019
Chartered accountants Leathers has gained a reputation over the past 30 years for its expert knowledge in relation to property taxation, acting for investors and property owners across the North East, Yorkshire and the wider UK.
In recent times, property taxation has been an area of significant change, with residential property owners, investors and landlords all being affected.
Landlords and buy-to-let investors have keenly felt these new changes, with the double blow of higher Stamp Duty Land Tax (SDLT) for purchases of additional residential properties and restriction of interest relief forcing investors to consider how they structure their affairs.
However, it is not only investors who are affected by property taxation changes. New rules will be introduced around Principal Private Residence Relief (PPR), which take effect in April 2020 for all homeowners.
Under the new rules, a homeowner who transfers their main residence from one house they own to another will have only nine months to sell the first property; otherwise, they may become liable to pay Capital Gains Tax (CGT) on the sale
of the first home.
Jonathan Carr, tax consultant at Leathers, says: “Property is a complex area, where the situation often differs greatly depending on the circumstances of the individual, such as how many properties they own, what other assets they have, and so on. But with the UK property sector being specifically targeted by tax legislation in recent years, the resulting sweeping changes have meant even property investors with the smallest portfolios have found it difficult to negotiate the new rules and understand their subsequent obligations.
“One of the key reasons we introduced our annual property taxation seminar three years ago was as a response to the increasing complexity of property taxation. It feels like all property owners have been targeted.”
Property investors also need to consider the VAT position of their investments. Alex Newsham, indirect tax consultant at Leathers, has been advising property investors for over 15 years.
“Most residential landlords think that because their supplies are exempt from VAT, that’s the end of the story. But if you also have a sole trade, then any rents received form part of your overall business income and can have an impact on the amount of VAT payable – especially if your business is already partially exempt or uses the Flat Rate Scheme,” says Alex.
With further changes on the horizon, all property investors must stay on top of the ongoing changes in this area to ensure they are complying with their tax obligations, which HMRC are notoriously keen to enforce.
Alex explains: “During July 2019, the Office of Tax Simplification launched a project looking at the tax reporting and payment arrangements for landlords of residential property; it’s inevitable that more changes are on the horizon.”
One of the key areas of concern is around SDLT. The additional three per cent surcharge for buy-to-let and second home purchases has been a significant recent change – in practice, this can translate to a vastly increased tax outlay. For example, the SDLT due on the purchase of a £600,000 property is now £38,000, compared to a £20,000 liability, which would have been due pre-increase.
Jonathan regularly works with investors on how best to manage their SDLT obligations and liabilities; he has been directly involved in securing almost £100,000 of SDLT refunds for clients.
“SDLT is an area which incurs significant costs but is not entirely understood. Liabilities in this area are often sizeable, particularly for those affected by the three per cent surcharge, and we find that as the process has become more mechanical, there are real risks where purchasers may not be applying the rules correctly. Combined with the shortened SDLT reporting period, the likelihood of further errors increases,” he says.
“We would always advise buyers of properties or land to review the SDLT implications before proceeding with the transaction. Our team works with property owners and investors across the country on how best to manage their tax position.”
The shortening of the reporting window for SDLT returns from April 2020 isn’t the only timeframe changing for property sales. There will be a 30-day reporting and payment window for CGT on the sale of all UK residential property from next year.
Alex’s concern is that this will create more uncertainty and is part of HMRC’s overall digitalisation strategy.
“There has certainly been a lot of change and one of the biggest has been the digitalisation of tax reporting, with a move towards tax being paid quicker and faster and more electronic information being gathered by HMRC,” he says.
Alex and Jonathan are sure about one thing: this is a very fast-moving area of tax and one in which they would always recommend seeking specialist advice. The changes to the property sector have been far-reaching, and the reduction in reporting time for SDLT, which will soon also apply to CGT, makes the need for property owners to act on their obligations even more urgent.
Jonathan concludes: “Tax planning is always strongly advisable for owners of property. While this is an area in which there are undoubtedly significant obligations, there may also be savings and indeed gains to be made. If anyone has any concerns or requires assistance, please get in touch and the team will be happy to help.”
Leathers is again holding its popular property seminars in Newcastle and Harrogate, in response to the continuing and growing demand for tax advice and planning around property. The events are now in their fourth year and continue to be a must-attend date for anyone working in property. The Newcastle event is on November 20 at the Tyneside Cinema; Harrogate will be on November 27 at the Everyman Cinema. Both are from 8.30am to 10am and will include insight and presentations from Ryan Harrison, Alex Newsham and managing partner Michael Leather.
To register attendance, please email Julie Raisbeck on firstname.lastname@example.org
0191 224 6760
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