UK200Group members discuss new measures that could have a significant impact on residential property
Members of the UK200Group of independent accountancy and law firms have today commented on new measures aimed at residential property investors.
The Chancellor’s Autumn Statement contained a number of new measures aimed directly at the buy-to-let and second home market.
The new measures included a three per cent surcharge on stamp duty land tax for buy-to-let properties and second homes that will be introduced from 1 April 2016 and changes to capital gains tax (CGT), which will see CGT due within 30 days of selling a property, rather than the current time limit at the end of the tax year.
This follows on from the announcements in the Summer Budget earlier this year, which will see mortgage interest tax relief on buy-to-let homes reduced from 2017 to a basic rate of tax relief (20%) on mortgage payments.
Duncan Montgomery, tax partner at UK200Group member firm Whittingham Riddell, said:
“The idea that a buy-to-let investor who sells a property should pay capital gains tax (CGT) within 30 days is frankly ludicrous. There is simply no other capital disposal that falls in to this system; no other taxpayer has to pay at this speed on a capital gain.
“The 30 day limit, if it is linked to the exchange date, (which is the normal trigger date for capital gains events) not the completion date will mean the CGT is likely due before the completion statement arrives from the solicitor.
“That means the taxpayer gets to pay on estimated figures, and then adjust later. We would strongly oppose any real time payment for small property investors, who frankly are the least able to cope. Many have inherited a property, or are renting their old home. They are not in a position to compile cost histories quickly and pay early; many may not even file a tax return.
“This is another disincentive to selling an existing property that is let and in effect ties up the market and reduces fluidity.”
Mike Chapman, senior tax manager at UK200Group member firm Knill James Chartered Accountants, said:
“As if George Osborne’s announcement in the Summer Budget of the phasing out of higher-rate tax relief on landlords’ interest payments wasn’t enough, his latest Autumn Statement introduces a further fiscal double whammy for landlords, which could have major consequences for the residential property market.
“Firstly, higher rates of stamp duty land tax (SDLT) will be charged on purchases of additional rental property (above £40k) from 1 April 2016 aimed specifically at buy-to-let properties and second homes. The higher rates will be three percentage points above current SDLT rates and the exclusion of companies from the charge indicates that the government sees the freeing up of residential property currently in private hands as key to its housing policy.
“So, there will pain on the way into the buy-to-let market through SDLT and a second announcement in the Statement revealed an unwelcome capital gains tax (CGT) surprise on exit.
“From April 2019, a payment on account of any CGT on the disposal of residential property will be due just 30 days after completion. This compares to the current rules where the settlement of the tax due can be anything up to 21 months after disposal depending when in the fiscal year the sale occurs.
“What will the affect be on the property market? Clearly landlords who have maximised their borrowings with a view to enjoying capital growth may now seek to restrict their financial exposure by disposing of parts of their property portfolios. Where such properties are standing at a gain, disposal before the CGT acceleration is due will clearly be advisable.”
