Stamp Duty Land Tax: Additional Properties
Is everybody bearing their fair share of additional taxation in these times of austerity…………landlords certainly are!
George Osborne in his first post Coalition Budget introduced measures to restrict income tax relief obtained on buy to let mortgage interest payments meaning higher tax bills for landlords.
Mr Osborne has done it again in the Autumn Statement with the news that he intends to introduce higher rates of Stamp Duty Land Tax (SDLT) on the purchases of additional residential properties (above £40,000), such as buy to let properties and second homes, from 1 April 2016.
The higher rates will be 3 percentage points above the current SDLT rates. The higher rates will not apply to purchases of caravans, mobile homes or houseboats, or to corporates or funds making significant investments in residential property given the role of this investment in supporting the government’s housing agenda. The Government will consult on the policy detail, including on whether an exemption for corporates and funds owning more than 15 residential properties is appropriate.
Interestingly, both of the above measures leave planning opportunities if landlords’ structure and now purchase their portfolios carefully.
Capital Gains Tax
An interesting move by The Chancellor was to accelerate the payment of Capital Gains Tax. It would appear that 31 January following the tax year in which the capital gain is made is too long.
From April 2019, a payment on account of any CGT due on the disposal of residential property will be required to be made within 30 days of the completion of the disposal.
This will not affect gains on properties which are not liable for CGT due to Private Residence Relief. The Government will publish draft legislation for consultation in 2016. (Finance Bill 2017)
Another swipe at landlords or just an attempt to bring UK resident CGT payers in line with non-residents who dispose of UK residential property? Exactly how to calculate this payment on account will be explained in the Finance Bill.
With advanced planning by landlords this accelerated CGT liability can be managed or even mitigated.
The Chancellor in tinkering with the following:
- Deeds of variation – The Government will not introduce new restrictions on how deeds of variation can be used for tax purposes but will continue to monitor their use.
- Capital gains tax entrepreneurs’ relief – The government will consider bringing forward legislation to remove unintended anomalies caused by the changes made by Finance Act 2015 to entrepreneurs’ relief.
- Company distributions – A consultation will be published on the rules concerning company distributions later in the year. The government will also amend the Transactions in Securities rules and introduce a Targeted Anti-Avoidance Rule. These measures are intended to prevent income being converted to capital in order to gain a tax advantage – this is hot on the heels of the 7.5% new dividend tax regime introduce from 6 April 2016.
- Salary sacrifice – The government remains concerned about the growth of salary sacrifice arrangements and is considering what action, if any, is necessary. The government will gather further evidence, including from employers, on salary sacrifice arrangements to inform its approach.
Business Investment Relief
Whatever your views on the UK’s non domicile tax regime, recent changes announced in the Summer Budget made it clear that the Government thought the rules were too generous and perhaps open to abuse.
The Government will consult on how to change the Business Investment Relief rules (BIR allows taxpayers to remit to the UK, tax-free, their offshore income and gains in order to invest in qualifying UK investments) to encourage greater use of the relief to increase investment in UK businesses.
Employment intermediaries and tax relief for travel and subsistence
As confirmed in the Summer Budget 2015, the Government will legislate to restrict tax relief for travel and subsistence expenses for workers engaged through an employment intermediary, such as an umbrella company or a personal service company. Following consultation, relief will be restricted for individuals working through personal service companies where the intermediaries’ legislation applies. This change will take effect from 6 April 2016.
Tax Avoidance and Evasion
The following has been announced regarding tax avoidance (legal) & evasion (illegal):
- Criminal offence for tax evasion – A new criminal offence that removes the need to prove intent for the most serious cases of failing to declare offshore income and gains will be introduced.
- Civil penalties for offshore tax evaders – Civil penalties for deliberate offshore tax evasion will be increased, including the introduction of a new penalty linked to the value of the asset on which tax was evaded and increased public naming of tax evaders.
- Civil penalties for those who enable offshore evasion – New civil penalties will be introduced for those who enable offshore tax evasion, including public naming of those who have enabled the evasion.
- Criminal offence for corporates failing to prevent tax evasion – A new criminal offence will be introduced for corporates which fail to prevent their agents from criminally facilitating tax evasion by an individual or entity.
- An additional requirement to correct past offshore tax non-compliance – A consultation will be published on an additional requirement for individuals to correct any past offshore non-compliance with new penalties for failure to do so.
For advice on any of the matters referred to in this blog, please contact the Enterprise Tax Centre team.