Key issues in the property landscape to consider in the coming months
PUBLISHED: 11:31 19 December 2016 | UPDATED: 10:19 05 January 2017
With a raft of recent changes for residential property owners, and more anticipated in the coming months, Edward Emblem of Smith & Williamson, the accountancy, investment management and tax group, highlights some of the key issues to consider.
Property tends to be a long term investment, but the tax rules can change so quickly that owners can very quickly find their knowledge out of date.
Stamp duty land tax
Since 1 April 2016, a 3% stamp duty land tax surcharge has applied to the purchase of a UK residential property if the buyer already owns residential property in the UK or elsewhere, whether it is for personal use or is let. The surcharge applies if the buyer (or one of the buyers) also owns any interest in another dwelling, with a refund of the surcharge being potentially available if that other property is the buyer’s main residence and it is sold within three years. There are special rules governing trust and company purchases.
Capital gains tax ‘surcharge’ on residential property gains
Capital gains tax (CGT) rates were reduced to 10% and 20% as from 6 April 2016. However, these reduced rates do not apply on the sale of residential property (that does not qualify for private residence relief), where the rates remain at 18% and 28%.
From April 2017, there will be a restriction on tax relief for the finance costs incurred on the purchase of residential property (except properties that qualify as furnished holiday lets). Relief will be restricted to the basic rate of 20%, although the rules will be phased in over four years, with the full restrictions applying from 2020/21 onwards.
CGT for non-UK residents
Non-UK residents (including trusts and companies) who sell UK residential property are now liable for UK tax on gains that have accrued on that property since April 2015. Generally, non-UK residents will need to complete a special tax return and pay any tax due within 30 days of sale. Private residence relief may be available, provided the owner spends sufficient time in the property.
Proposed inheritance tax liability on UK residential properties
From 6 April 2017, all UK residential property, whether held directly or indirectly, is due to be brought within the scope of inheritance tax. This means that, unlike the present position, any property owned by a closely held non-UK company, or trust and company, will be within the scope of the tax.
Annual tax on enveloped dwellings
Annual tax on enveloped dwellings (ATED) is payable by corporate entities that own UK residential property, unless it is let on a commercial basis. The tax was introduced in April 2012 and initially applied only to UK residential properties worth more than £2m, but, since April 2016, all property worth more than £500,000 now falls within the scope.
The annual charge ranges from £3,500 to £218,200 depending on the value of the property, and a special return needs to be filed (even for let properties). It may be worth reviewing existing structures to see if corporate ownership is still the most tax efficient structure.
Profits from trading in and developing UK land
As from March 2016, all profits arising from trading in or developing UK land are subject to UK tax, whether or not these profits are realised by a UK resident entity. This will affect overseas property developers who were previously outside the scope of UK tax, and will affect commercial as well as residential property development.
UK property ownership register
The UK Government has announced its intention to introduce a public register of all non-UK companies that own property in the UK. This register, which will be introduced in 2017, will include details of the beneficial owners and will apply to all foreign companies that already own UK property as well as to new buyers. There will be a consultation on the new register but, although the register is intended to ‘punish and drive out corruption’, we note that it will also have a significant impact on those who value their privacy.
The breadth of the above changes is vast and the potential impact could be significant. If you own property, it is recommended that you review your position as soon as possible to ensure that you fully understand the impact of the changes, and investigate what steps you may be able to take to mitigate this.