Last weeks Budget saw several announcements by Chancellor of the Exchequer which effect property owners, George Osborne. Changes include reductions in Capital Gains Tax – but not for disposals of residential property – the extension of the 3% Stamp Duty Land Tax increase to previously exempt large investor landlords, an increase in Insurance Premium Tax and reductions in business rates and Corporation Tax. In summary:
- a) Capital Gains Tax rates reduced from 6th April 2016, but not for residential property
The higher rate of Capital Gains Tax (CGT) is to be cut from 28% to 20% and the basic rate from 18% to 10%. However, gains on residential property will still be taxed at the current rates, so residential landlords disposing of rental properties will effectively be subject to an additional eight percentage point surcharge on their gains.
Capital Gains Tax on residential property is not payable on the disposal of a main home, but it does apply to the sale or transfer of additional properties for example buy-to-let investments. The exclusion of capital gains arising on the disposal of additional residential properties, from the tax cut, is counter to the suggestion by the Royal Institution of Chartered Surveyors (RICS), reported in last week’s Members’ Circular, that the Chancellor reform CGT rules to provide tax relief to landlords selling properties to their existing tenants.
The Chancellor said the new CGT rates will come into effect three weeks after the Budget.
The Royal Institution of Chartered Surveyors (RICS) said “this budget will do little to incentivise greater institutional involvement in the Private Rented Sector, at a time when we need to be encouraging the raising of standards and the securing of greater supply.”
The National Landlord’s Association responded to the Budget: “The steady upward ratchet of taxation on landlords over the past year shows that George Osborne is determined to bear down on the private rented sector”.
- b) Non-residential Stamp Duty Land Tax
New rules on the calculation of Stamp Duty Land Tax (SDLT) were introduced with almost immediate effect. The rules apply to purchases of non-residential property, completing on or after 17th March 2016, including purchases of mixed residential and non-residential property. The SDLT rates for both freehold and leasehold purchases apply to the value of the property over each band:
£0 to £150,000 – 0%
Over £150,000 and up to £250,000 – 2%
Over £250,000 – 5%
A new 2% rate band will apply to the rental element of leasehold transactions, on net values exceeding £5 million.
- c) Additional 3% rate on Stamp Duty Land Tax for all landlords
The Autumn Statement 2015 announced that higher rates of Stamp Duty Land Tax (SDLT) are to apply to purchases of additional residential properties, such as second homes and buy-to-let properties. The higher rates will be 3% above the current rates of SDLT, payable on the total price paid for the property, on transactions completing on or after 1st April 2016.
This Budget confirmed that the changes are to take effect from 1st April 2016 as planned. However, whereas the original proposals did not extend to large commercial and investor landlords, the Chancellor said he had: “listened to colleagues and the rates will apply to large investors too.” The higher rates will therefore apply equally to purchases by individual private landlords and corporate investors.
Receipts from the increase will be used to support community housing trusts, said the Chancellor.
Following consultation, the proposed maximum permitted gap between the sale of a previous main residence and purchase of a new main residence, which would entitle a purchaser to claim a refund of the higher SDLT rate paid, has been increased to 36 months from the 18 months previously proposed.
The new rates will apply to the portion of the consideration that falls within each rate band:
Up to £125,000 3 %
From £125,001 to £250,000 5 %
From £250,001 to £925,000 8 %
From £925,001 to £1,500,000 13 %
Over £1,500,000 15 %
Melanie Leech, chief executive of the British Property Federation, commented on the decision not to include an exemption for large-scale property investors from the 3% SDLT surcharge for additional homes: “The Government’s decision to not include an exemption for investors who are purchasing large portfolios of properties for rent is extremely disappointing, and deals a huge blow to the build to rent sector. This is going to be a significant deterrent to the institutional investment currently poised to settle in the purpose-built rented sector, which has the opportunity to deliver a significant number of new, quality affordable homes.”
The most recent figures from the BPF’s Build to Rent map show that there are 40,000 build to rent units in planning, construction or completed across the UK.
RICS said the extension of the additional SDLT burden to larger investors “is likely to reduce their readiness to step-in to this strategically crucial market and expand supply.”
- d) Insurance Premium Tax to increase
Insurance Premium Tax is to increase from 9.5% to 10%. The additional income generated is to be spent on flood defences. The Chancellor said the increase would provide “a £700 million boost to our resilience and flood defences”.
- e) Lifetime ISA
From April 2017, any adult under 40 will be able to open a new Lifetime ISA. Up to £4,000 can be saved each year until savers are 50. Savers will receive a 25% government bonus on this money.
Money put into this account can be retained until the saver is over 60 and used as retirement income, or it can be withdrawn to help buy the saver’s first home; the savings and bonus can be used towards a deposit on a first home worth up to £450,000. The accounts are limited to one per person rather than one per home, so first time buyers buying in joint names can both receive a bonus.
Savers with a Help to Buy: ISA can transfer those savings into the Lifetime ISA in 2017, or continue saving into both although savers can only use the bonus from one to buy a house.
- f) New tax allowances for money earned from the “sharing economy”
From April 2017, there will be a new £1,000 tax-free allowance for income from property owned by the tax-payer. Examples cited by the Chancellor of the Exchequer include renting a driveway or loft storage.
- g) Funding for New Housing
The Government will extend the Private Rented Sector Housing Guarantee Scheme until December 2017 to encourage long-term institutional investment in the private rented sector.
The Scheme supports projects that will deliver new-build private rented homes, with the aim of accelerating the growth of investment in the private rented sector by institutional investors.
RICS has welcomed the extension of the scheme but says the announcement that the SDLT surcharge of 3%, for second homes and buy-to-let properties, will apply to both small private landlords and institutional investors “is a blow to future investment and given government interest in growing institutional investment does not seem to align with the chancellors sentiment that ‘we should increase taxes for behaviour we want to discourage and decrease it for behaviour we want to encourage’”
- h) Corporation Tax to be reduced to 17% in 2020
The main rate of Corporation Tax will be reduced from to 20% to 17% in 2020.
- i) Business rates to be cut from 2017
From April 2017, small businesses that occupy property with a rateable value of £12,000 or less will pay no business rates. Currently, this 100% relief is available to a business occupying a property with a value of £6,000 or less. A tapered rate of relief will be available on properties valued up to £15,000. In his Budget speech the Chancellor said: “In the past I’ve been able to double it for one year only. Today I am more than doubling it, and I’m more than doubling it permanently.”
Many businesses will benefit from the increase in the threshold for the higher rate, from £18,000 to £51,000. Furthermore, from 2020 the business rates multiplier will be calculated by reference to the Consumer Price Index (CPI) rather than the Retail Price Index (RPI) used at present.
Melanie Leech, chief executive of the British Property Federation, commented: “We have campaigned for a long time for the business rates multiplier to be calculated by reference to CPI, which is a much better indicator of commercial property rental growth than the now-discredited RPI. This move, coupled with an improved appeals regime, should go some way to making business rates fairer.”
RICS said the announcement would be welcomed by small and medium enterprises, as would the Corporation Tax reduction, “with these policies having the potential to increase the creation and maintenance of more jobs.”
Information kindly supplied via ARMA – http://arma.org.uk/
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