Time to take stock of the ever changing property tax landscape

By Andy Noton, Partner
andrewnoton@lubbockfine.co.uk
020 7490 7766

The March 2017 Budget took a different stance to previous Budgets and Autumn statements. The current (and previous) government(s) had often taken aim at investors in the property market by introducing new tax raising measures. The lack of these in the Budget was only partly good news for property investors as many had hoped for repeal of recent tax raising measures. Though it does give everyone the chance to take stock of the onslaught of recent changes to legislation.

Two areas of particular concern for property investors have been (a) the 3% stamp duty land tax surcharge for second homes and buy to let investments (https://www.lubbockfine.co.uk/blog/stamp-duty-land-tax-hike-more-pain-buy-let-investors) and (b) the restriction of relief for finance costs for individual investors (https://www.lubbockfine.co.uk/blog/summer-budget-clouds-buy-let-property-market). Both of these are blamed, at least in part, for the recent slowdown in the residential property market. Many action groups have been campaigning hard for a relaxation or cancellation of these tax rises but so far, these pleas are falling on deaf ears.  

For landlords owning residential property, their 2016/17 tax returns will see rises in tax charges following the abolition of the wear and tear allowance. There has not been much outcry at this change given the deduction was rarely supported by actual costs incurred.

As noted above, over the next 4 years, landlords with interest costs will generally be looking at rising tax charges and in some cases, these will exceed their profits. Many are looking at alternative structures and while incorporation is seen as an answer for some, the reality for many is that the costs involved, and reduced flexibility of a corporate structure are unattractive for existing portfolios.

For overseas landlords a consultation has recently been launched on moving non-resident companies from income tax to corporation tax following the Chancellor’s announcement in the Autumn. It appears the primary objective of this move is to bring non-resident landlords under the (OECD Base Erosion Profit Shifting inspired) new rules on interest deductibility (not related to the interest restriction on UK buy to let investors) and restrictions on utilisation of losses brought forward. After all, why have one set of tax legislation when you can have two? It appears this is not intended to bring capital gains on commercial property into charge for non-resident landlords. I would, however, welcome the suggestion that any losses carried forward and capital allowance pools will transition across to the new regime without the need to recalculate these under corporation tax rules. The recent shelving of most of the Finance Bill 2017 (now Act) and announcement of a general election on 8 June 2017 has only added to uncertainty.

For more information on the changing property scene, please feel free to contact Andy Noton.

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