Are you tired of the chancellor tinkering with property taxes? I’m a landlord with a small portfolio, so have been feeling the pain myself with successive budgets and autumn statements squeezing smaller investors in the sector. To many people’s surprise, this time round, the Chancellor largely left the property sector alone for the first time in years in his last Spring Budget.
What the Property Industry wanted from the Budget:
Stamp Duty Land Tax
Before the Budget, there were calls from property industry experts for the higher rate of Stamp Duty Land Tax (SDLT) to be cut, which they believe is holding back the growth of the market. Experts claimed that a cut in the rate would encourage more property sales even though the government would take less tax from each property sold. Such a move would have been popular with buy-to-let investors who currently pay a further surcharge on additional properties owned by them. Changes to Stamp Duty introduced in 2016 mean that investors with more than one property pay 13% in Stamp Duty on properties which cost £925,000-£1.5million while homeowners with no additional properties pay 10%. For property worth in excess of £1.5million, property investors must pay Stamp Duty at 15% whereas homeowners with one property pay 3% less.
Since the introduction of the higher rates of Stamp Duty Land Tax in April 2016, sales at the top end of the housing market have plummeted.
With the five yearly business rate revaluation looming in April, Britain’s largest business groups had pleaded with the Chancellor to fix the business rates system and reform the unfair and outdated regime. They firmly believed the system deterred investment, with the burden of business rates now higher than any of the UK’s international competitors.
What the Property Industry got from the Budget:
1. Business Rates
The government is to make available an additional £435 million transitional relief is to provide further support to businesses facing major rates increases from April 2017. This was to ensure that no small property would face more than a 5% increase before inflation due to the revaluation (Autumn 2016 statement).
Three key changes announced at the Budget:
1.The increase for small businesses coming out of Small Business Rates Relief will be capped at £600 a year.
2.Pubs with a rateable value of up to £100,000 will be able to claim a £1,000 business rate discount.
3.Local authorities in England will have access to additional funding of £300 million to support businesses most affected by the revaluation.
Square Mile Accounting Reaction: Some relief is certainly welcome, however it still doesn’t address the significant increase in rateable valuations in the South East and London where large rate rises are expected.
2. Conversion of capital losses to trading losses
The Chancellor announced measures would be taken to prevent companies trying to turn capital losses into trading losses by transferring investment properties (where the market value is lower than the cost of the property) to trading stock, to convert the capital loss into a trading loss. This is effective from 8 March 2017.
Square Mile Accounting Reaction:A potential banana skin for property investors.Anyone currently planning on redeveloping an investment property should consider the tax consequences of these changes.
3. Research & Development tax credits
The government announced its intent to simplify the administrative side of claiming Research and Development Expenditure Credits and to increase awareness of R&D tax credits among innovative SMEs.
Square Mile Accounting Reaction:R&D tax credits are an important source of funding for innovative businesses.The government have made it clear that they are supportive of the tax relief and credit regime by announcing measures to simplify the administration and simplicity of R&D claims.
4. Landlords – tax filing requirements
Landlords were given an extra year before the introduction of the quarterly filing of accounts with HMRC, postponed from 6 April 2018 to 6 April 2019 for landlords with rental income under £85,000.
Square Mile Accounting Reaction: Here is some welcome rest bite for part time landlords. I’m not sure how many landlords who have rental income over £85k will still be running their portfolios as an individual by then anyway. Most savvy investors will be looking to either change strategy or incorporate their portfolios.
5. Offshore property developers
The Chancellor amended legislation to ensure that all profits from offshore property developers developing land in the UK are subject to UK tax, with effect from 8 March 2017, even if they contract to sell the property prior to 5 July 2016 and reported the profits after 8 March 2017.
Square Mile Accounting Reaction: The Government are intent on ensuring that all UK development projects are subject to tax which is surely a good thing for UK citizens but bad for big offshore developers. Offshore investors should now factor in a UK tax exposure on development profits.
6. Stamp Duty Land Tax
The introduction of a 14-day window (instead of the current 28-day period) for filing and payment for Stamp Duty Land Tax (SDLT) was postponed until after April 2018 at the earliest.
Although this budget was light on negative news, the government seems intent on reducing the attractiveness of the property market to smaller investors. If you want to try and keep as much of your profits as possible, then be pro-active and take tax planning advice as early as possible. We specialise in helping property businesses to get absolute best from their property portfolios so please get in touch with the team at email@example.com to find out how we’ll help you become a more profitable property business.