UK Property taxes – a review of the recent and upcoming changes

UK Property taxes – a review of the recent and upcoming changes

Recent Budgets have not been kind to buy-to-let landlords and property investors in terms of their UK property taxes liability.  Tax changes of seismic proportions are being phased in, arguably the most onerous being the restriction of mortgage interest relief on buy-to-let properties.  In short, higher rate tax relief is to be phased out for landlords on the “costs of finance”, starting from 6 April 2017.  The restriction progressively increases every tax year until 2020-21, when the full effect bites. These new rules will markedly increase UK property taxes and the income tax burden for landlords. The changes could push currently profitable businesses into the red, once the higher tax burden is accounted for.

Other punitive tax changes already introduced include the specific exclusion of investment property from the reduction to the main rates of Capital Gains Tax (“CGT”) announced in Budget 2016.

The bad new continues, with changes announced to Stamp Duty Land Tax (“SDLT”) and the Wear & Tear allowance.  Broadly an additional 3% SDLT will be added to the current SDLT rate for additional property purchases beyond the main home (such as a buy-to-let properties, second homes etc). The favourable Wear & Tear allowance is being abolished by the reintroduction of the renewals basis, meaning, in all likelihood, less tax deductions and higher taxable profit.

Non-resident landlords and property investors are also in government’s sights, with the disposal of UK residential property by non-UK resident individuals (and other entities) now falling within the scope of CGT, as a result of changes introduced from April 2015.

All of these changes, when taken together, send a clear message that the property sector is becoming far less attractive as an investment proposition.  The government’s alleged motive has nothing to do with the ongoing battle to reduce the UK’s annual budget deficit but is to “incentivise” landlords and property investors to sell up, thereby freeing up housing stock for “generation rent”, who are keen to get a foot on the housing ladder.

Landlords should urgently review their current ownership structure to see if it remains suitable for their needs going forwards.  Lancaster Knox has considerable expertise in the property arena and will be on hand to provide advice, guidance and solutions to the growing list of problems landlords are now facing.