2016: Housing and Property – Impacts of the UK budget
Last month Chancellor George Osbourne made a number of announcements in the 2016 budget will have an impact on the housing and property market:
•Additional Stamp duty
As of 1st April 2016 there is a 3% levy on top of normal stamp duty rates if you buy an additional property that is not intended to be your main residence. There are no exemptions and significant investors purchasing 15 or more properties in one transaction are also subject to this levy.
The ability of landlords to offset mortgage interest against income is being gradually reduced, and by 2020, landlords will no longer be able to deduct any mortgage interest before calculating tax. This may have the effect of pushing many into higher tax brackets. Nevertheless, relief will be set at a flat rate of 20 per cent, effectively halving the break for those higher-rate taxpayers. An automatic ten per cent maintenance deduction is also being removed and landlords will have to prove expenses for which they are claiming. The Chancellor also excluded landlords from the new lower rates of Capital Gains Tax (CGT) and they will continue to pay at the old basic rate of 18% or higher rate of 28%.
This could result in a large number either getting out of the buy to let business or reducing their portfolios significantly. So it is no surprise that this is one of the most discussed topics in the residential market.
•Off Shore Developers to pay Tax
The Government has announced new measures in the budget designed to ensure that offshore developers of UK land are taxed in the same way as a UK developer would be taxed. The purpose of this is to prevent groups from fragmenting profits from the development by paying large development fees to connected offshore companies in the hope of reducing the profits subject to UK tax on the property.
This amends current legislation so that the profits from dealing in UK land or developing UK land are properly taxed regardless of :
• the residence of the entity carrying on the trade;
• where the trade is carried on; or
• whether the trade is carried on through a permanent establishment in the UK.
The full profits gained from any trading activity, in respect of UK land or property,will be subject to UK tax. Arguments as to the attribution of profits to a UK permanent establishment will no longer apply.
The changes will apply to disposals of UK land that occur on or after the date the legislation is introduced in Parliament at Report Stage, expected to be June 2016.
HMRC have invited comments on the technical note published last month, responses must be received no later than 29 April 2016.