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Property tax

ICAEW Tax Faculty provides analysis of the announcements relating to property taxes in the Autumn Budget 2017.

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Download a PDF of the Tax Faculty's summary of the announcements on tax and related matters in the Autumn Budget 2017

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SDLT: first time buyers

The Chancellor did not have any white rabbits to pull out of his hat, the nearest he came was announcing the stamp duty land tax (SDLT) changes for first time buyers. The press had trailed that he would announce an SDLT holiday for first time buyers but instead he abolished it for this group. His reasoning was that it was not just those on the brink of buying their first property that would benefit.

Properties costing up to £300,000 will have no SDLT, a saving of up to £5,000. Properties costing up to £500,000 will be exempt from SDLT on the first £300,000. This applies to transactions with an effective date on or after 22 November 2017.

The measure will cost £125m in the current financial year and then £560m next year rising to £670m in 2022/23.

The SDLT changes are part of a whole package of announcements designed to increase the housing stock and give help to younger buyers. Thirteen years ago 59% of those aged 25 to 34 were home buyers, that percentage is now down to 38%.

The boost for first time buyers is welcome but it is another bolt on to the taxation of property which has been compiled in bits and pieces over several years with no coherent policy running through it and we have long called for an overall review.

SDLT: higher rates

A change to the rules for the additional 3% SDLT for additional properties, granting relief in certain cases, has immediate effect. It applies to those people increasing their share of their own home, families affected by a divorce court order and cases where properties are held in trust for children subject to Court of Protection orders.

New rules will be introduced to prevent abuse of relief for replacement of a purchaser’s only or main residence by requiring that the disposal has to be of their whole interest in the former main residence and to someone other than their spouse.

SDLT: changes to the filing and payment process

It was announced at the Spring Budget 2017 that the changes to reduce the SDLT filing and payment date from 30 days to 14 days would be delayed until after April 2018. It has now been confirmed that the reduced filing and payment window will apply to land transactions with an effective date of 1 March 2019 or later. Some improvements will be made to the SDLT form to make it easier to comply with the new reporting time frame.

Rent-a-room relief

There will be a call for evidence to establish how rent-a-room relief is being used to ensure it is better targeted at longer-term lettings. Rent a room allows you to earn up to £7,500 per year tax-free from letting out furnished accommodation in your home. It is available to resident landlords and is also available if you run a bed and breakfast or guest house but not if your home is converted into separate flats.

Mileage rates for landlords

Many landlords and indeed agents will be surprised to know that the option of claiming 45p per mile for travel expenses has not been available until now. With effect from 6 April 2017 landlords will be able to use this shortcut method; there will be transitional arrangements for those landlords who have claimed capital allowances in the past and wish to move to the shortcut method.

The policy paper explains how s272(2), Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005) which applies to property businesses that continue to use GAAP will be amended, but it does not mention s272ZA(1), ITTOIA 2005 which now applies to property businesses that use the cash basis, which is the default basis. We presume this is an oversight as the cash basis has only just been enacted.

Annual tax on enveloped dwellings

The annual tax on enveloped dwellings (ATED) charges will rise by 3% from 1 April 2018 in line with the September 2017 CPI. The ATED charge applies to companies, partnerships with corporate members and collective investment schemes with an interest in UK property valued at more than £500,000.

The annual charges are as follows. The chargeable period runs from 1 April to 31 March.

Property value £ 2017/18 charge
£
2018/19 charge
£ 
500,001–1,000,000
3,500
3,600
1,000,001–2,000,000
7,050
7,250
2,000,001–5,000,000
23,550
24,250
5,000,001–10,000,000
54,950
56,550
10,000,001–0,000,000
110,100
113,400
20,000,001 and over
220,350
226,950
 

The bands themselves have not been uprated for inflation and so businesses could see their properties falling into higher bands and now subject to an increased charge.

Capital gains tax payment window

It had been proposed that CGT on the disposal of a residential property should be paid within 30 days with effect from April 2019; this will now be delayed by a year. Most sales of residential property will qualify for principal private residence relief and so no tax is payable. There have been problems with the process for non-residents to report capital gains on the sale of residential properties, liable to CGT since April 2015, within a 30-day window. Hopefully lessons have been learnt from that and a simpler fail-safe system will be introduced for resident and non-resident taxpayers.

Gains made by non-residents on immovable property

It is proposed to levy CGT on non-residents on the disposal of all immovable property in the UK, that is, widening the scope of the present charge from just residential property to include commercial property. The changes will have effect from 1 April 2019 for companies and 6 April 2019 for individuals.

A consultation Taxing gains made by non-residents on UK immovable property was published on 22 November to explore the regime for taxing gains made by non-residents which covers direct and indirect disposals, rebasing and a very welcome look at harmonising ATED-related CGT within the wider regime.

Taxation of non-resident companies’ UK property income and gains

A consultation was published in March 2017 to look at whether non-resident companies with UK property income should be liable to income tax or corporation tax. The change from income tax to corporation tax was suggested to ensure that non-resident companies renting out UK properties do not escape the interest restrictions and loss restrictions applicable to corporates.

From April 2020 non-resident companies with UK property income will be liable to corporation tax and gains arising on the disposal of UK property will be charged to corporation tax rather than capital gains tax.