With over a week passing since the budget and its finance bill now published the dust is starting to settle on The Chancellor’s latest announcements.
In reflecting on these there is one group of individuals which could have more reason than others to feel more than hard done by, landlords.
On top of all the changes in recent years – mortgage interest restrictions, increased capital gains rates, additional stamp duty land tax to name just a handful this budget included yet more for landlords to contend with.
Non-Resident Property Owners
As it stands at the moment where a non-UK resident landlord disposes of a UK residential property then this needs to be reported to HMRC within 30 days of completion. Failure to make this notification can lead to automatic penalties which can soon escalate.
From 6 April 2019, this reporting requirement extends to the disposal of all UK “immovable” property, not just residential property. In addition, it also extends the definition to indirect disposals. For example, this now captures the case where shares in a company which holds UK land are sold by a non-UK resident individual.
Capital Gains Tax Payment Dates
Currently, the due date for capital gains tax payments is 31 January after the year of disposal of the assets. Hence in the scenario where a property is sold at the beginning of a tax year the tax on this wouldn’t need paying until almost 22 months later. This budget has now introduced some new rules governing CGT payment dates coming into effect from 6 April 2020.
|UK resident – Residential Property||30 days from sale|
|UK resident – non-residential property||31 January following tax year of disposal|
|UK resident – overseas property||31 January following tax year of disposal|
|Non-UK resident – any directly or indirectly owned UK property||30 days from sale|
Stamp Duty Land Tax
The filing and payment period of SDLT returns is reducing from 30 to 14 days for all transactions after 1 March 2019.
A consultation is being released in January next year considering a 1% SDLT surcharge on all non-residents purchasing residential property.
Principle Private Residence Relief (PPR) Reform
The above changes mainly seem to be administrative but the proposed changes to PPR and its associated reliefs will have the main impact in terms of tax.
Currently, where a property has at some point in its lifetime been a person’s main residence then in addition to the actual period of occupancy they are also deemed to be occupying it for the last 18 months of ownership regardless.
The proposed change is to reduce this to 9 months.
In addition where a property qualifies for PPR and is also let at some time during the ownership of the property then an additional relief, known as letting relief is available. This can further exempt up to £40,000 worth of capital gains.
Letting relief in itself isn’t being abolished it’s simply the qualification for it. As noted above in order to qualify the property at some time during its ownership needed to be let. The new definition is now that it only applies in circumstances where the owner of the property is in “shared-occupancy” with a tenant.
As the majority of the time where this currently applies the landlord and tenant live in separate dwellings so the effect of the new qualification will remove it in the majority of cases.
The tax impact of this will be significant as can be shown in the example below:
Assume that Mr Hylton has recently sold a residential property in Oxford for a gain of £100k which he had owned for 10 years. He lived in this property for 4 years before moving to Luton and purchasing another one. Between it ceasing to be his main residence and its sale he let it out to various tenants.
A comparison between the proposed new rules and existing rules are shown below:
|Pre 6 April 2020 Disposal||Post 6 April 2020 Disposal|
|Exempt due to main resident actual occupancy||(£40,000)||(£40,000)|
|Last 18 months deemed occupancy||(£15,000)|
|Last 9 months deemed occupancy||(7,500)|
|Charged to CGT||Nil||£40,800|
|Capital Gains Tax Due||Nil||£11,424|
So for a budget which some commentators stated didn’t have much in it, I would imagine most property landlords would disagree!
We are currently helping our clients to navigate through the changes announced in previous budgets and are currently exploring how we can help them through the recently announced changes so they remain not only tax compliant but also tax efficient. If you would like to see how we could you in the same way then please don’t hesitate to contact us for a free initial consultation.