Stamp Duty rise
The Chancellor has announced an unexpected tax rise for buy-to-let and second home buyers – an additional 3% stamp duty on new purchases to raise £3.8bn over the next five years. Corporate and fund investors are likely to be exempt from the new increase. It follows on from the recent restriction on mortgage interest tax relief for buy-to-let landlords.
Taken together, these recent measures seem to show the Chancellor encouraging a shift in the residential rental sector away from amateur landlords.
The government does not intend to make residential property less attractive for institutional investors and will consult on exemptions. Investors will be keen for clarification given the short amount of time until the 1st April 2016 implementation. It remains to be seen how ‘second homes’ will be defined, particularly with regards to overseas buyers.
Stamp duty is a tax on capital; buy-to-let and second home owners will now need more funds to enter the market as a bigger chunk of their deposit will be spent on stamp duty.
Paul Emery, real estate tax partner and head of stamp taxes at PwC
Residential property tax
Two new measures were introduced which will affect UK property ownership.
Firstly, those purchasing a buy-to-let residential property or a second home may need to pay an additional 3% Stamp Duty Land Tax (SDLT) from 1 April 2016. The additional rate will apply to purchases of additional residential properties costing over £40,000, but excluding caravans, mobile homes and houseboats. This will give a maximum SDLT rate of 15% for properties costing more than £1,500,000. This change, coupled with the restriction of interest relief from April 2017, will reduce returns from buy-to let investments and may reduce investment in this sector after April 2016. The increased rate will also apply to second homes; there is no indication as yet how this will be policed. It will not apply in Scotland which has a separate Land and Buildings Transactions Tax.
There will be a consultation next year on proposed changes to reduce the SDLT filing and payment window from 30 days to 14 days. This move could be expected to increase the administrative pressure on those buying UK property from 2017/18, when any new rules would come in.
Secondly, from April 2019 a payment on account of the capital gains tax due when a residential property is sold will be required within 30 days of the date of completion. This is something of a surprise given that the UK self-assessment system requires an annual tax return, but it does follow similar rules recently introduced for non-UK residents who sell such properties. It may also be linked to the approach to digital tax accounts which it seems will require more ongoing tax information to be made available to HMRC. This is estimated to bring in nearly £1bn in 2019/20 although this is merely bringing forward later tax receipts.
In practice, it may be difficult to calculate an appropriate amount to pay on account, for example, in cases where the gain is partly covered by private residence relief, or where losses are made which can be set against the gains. We await the promised draft legislation in 2016 for further details.
Patricia Mock, tax director, Deloitte
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