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Further tax changes for UK Property

Posted on 12th March 2020

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There have been a number of changes over recent years for both Non-UK Resident and UK Resident property owners and landlords, and in the March 2020 Budget the chancellor has announced a further change together with confirmation of previous announcements.

Non-UK Residents Stamp Duty Land Tax (SDLT) surcharge

The change announced relates to a SDLT surcharge of 2% when Non-UK Residents purchase residential property in England and Northern Ireland.  This comes into force from 1 April 2021 and the change is said to have been introduced to help control house price inflation and to support UK residents to get onto and move up the housing ladder.

In addition to this there are a number of previously communicated changes set to come in from April 2020 which we provide a brief recap of as follows:

No more Lettings Relief

Previously if you let a residential property you have once lived in and decided to sell it, you could benefit from up to £40,000 lettings relief (£80,000 if joint owners and you both lived in the property) to reduce your taxable gain. This has been a valuable relief for many years, and is especially helpful to those couples who each had their own home, and then moved into one and rented the other.

However, from 6 April 2020 you will only be able to claim this relief if you are still living in the property at the time of letting. This could therefore have a significant impact on landlords who have banked on this relief reducing their CGT exposure. It is worth noting, there are no transition rules. Lettings relief doesn’t continue to be available for the period up to 6 April 2020, it is simply removed altogether and therefore many will argue this is a brutal withdrawal of this relief.

Reduction in Principal Private Residence Relief

In addition to the lettings relief change, previously the last 18 months of ownership of a property that is or has once been your main residence are always deemed to be exempt from capital gains tax, even if you did not live in the property during this time, and this is being reduced to 9 months at the same time.

UK properties carried on by non-UK resident companies

From 6 April 2020, non-UK resident companies that carry on a UK property rental business or have other UK property income will be liable to corporation tax 19%, rather than income tax 20%.

Unused income tax losses should be carried forward into the new corporation tax regime. Larger companies, however, may be affected by rules that restrict the use of brought forward losses and put a cap on the deduction of interest expense. Non-resident companies that are part of a group should be able to benefit from group relief from 6 April 2020.

30 Days to pay your Capital Gains Tax (CGT)

The government want to receive the tax on residential property sales much sooner and therefore from 6 April 2020, UK residents who dispose of UK residential property will need to pay CGT and submit a CGT return, within 30 days of completion of the sale.

Previously taxpayers had either 10 or 22 months to pay CGT, so this is a significant change and there will be penalties and interest charged for failure to comply with these rules.

Non-Residents already fall within this regime and from 6 April 2019 this was extended to apply to direct and indirect disposals of all UK land (whether or not a gain arises).

In addition, other rules linked to UK property remain in place:

Rent a Room Relief

If you rent out a room in your main home then there are separate rules which provide tax relief of up to £7,500.

3% SDLT surcharge

Individuals will usually have to pay 3% on top of the normal SDLT rates if buying a new residential property means they will own more than one property. For companies and Trusts the 3% surcharge applies on the purchase of the first property.

In summary

UK property owners continue to face change and they need to understand the impact of these changes on their personal position.  Whilst this summary highlights the key changes, it is not exhaustive and with tax the devil is always in the detail. The rules should therefore be explored in conjunction the individual’s circumstances and future goals.

If you are a UK property owner, now is the time to seek advice to understand how to structure your affairs in the future.

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