In the year since the inaugural Leathers the Accountants Property Taxes Seminar, HMRC's focus on the taxation of property continues to grow. Ahead of this year's seminar, Barry James provides an update on what is now a very different landscape.
There is an obsession with property in the UK; owning it, refurbishing it, using it as a longterm investment and making a profit out of it. The UK property market, both residential and commercial, is a driver of the UK economy and a barometer of its success. Given the importance of the sector, it is surprising that it is only relatively recently that HMRC have adopted an aggressive approach in terms of seeing property as a generator of tax revenue.Whilst many legislative changes are targeted at certain areas/sectors, it is clear that the changes in property taxes are wide ranging. If they have not done so already, buy-to let landlords, property developers and investors (with the assistance of their advisors) should be reviewing their affairs in light of the tightening legislation.
Examples of property tax changes include: Landlords have seen the introduction of restrictions in tax deductions for the replacement of fixtures and fittings and a scaling back of tax relief for loan interest. The tax costs of acquiring properties have increased via changes to Stamp Duty Land Tax. The simple acquisition of a second property/ second home is likely to attract an additional 3% tax charge. Alongside this, the tax costs of disposal remain liable to the highest rates of Capital Gains Tax (for residential property). Many property developers have traditionally operated through a series of “SPVs” special purpose vehicles with each property development held by a separate company. Such structures are used to isolate commercial and banking risk but they can also offer certain tax advantages. These tax advantages are now being targeted via the introduction of new rules involving the taxation of “Transactions in Land”, together with the anti-avoidance legislation aimed at combatting what HMRC perceive as tax abuse through “phoenixism”.
Non-resident landlords are also being specifically targeted, despite the delay in enacting the Finance Act 2017, various updates to the legislation since 2015 now ensure that nonresidents are likely to be liable to both capital gains tax and inheritance tax on their property interests. Consequently, these measures have had a significant impact on tax revenue. Taking Stamp Duty Land Tax as an example, likely tax revenue in 2017-18 is expected to be over £12billion, which is almost twice that of the revenue earned from the same tax just five years ago. As ever, the property taxes changes are complex and a lack of clarity in the legislation has caught out the unaware. In addition, the absence of any certainty in HMRC guidance has led to a default approach of extreme prudence rather than exploring the possibilities to structure affairs tax efficiently. We are, as a team, encountering an increasing number of property tax queries across the full spectrum of taxes; our existing client base and our wider professional network recognise that we offer a specialist area of expertise and therefore come to us for our technical assistance.
Whilst the legislation is complex, by challenging accepted practice and perceptions in law, we have been able to make significant progress when structuring our clients’ affairs both in terms of future planning and obtaining tax relief. The team will be sharing their knowledge and expertise at the Second Annual Property Taxes Seminar at the Tyneside Cinema on 9 November 2017, commencing at 8.30am.
To reserve a place, please contact Rebecca Smith on 0191 2246760 or email r.smith@leatherstheaccountants.com.
