Another tax bombshell for landlords. In July the Government announced that tax relief on interest and finance costs will be restricted to 20%. And then in yesterday’s Autumn Statement came the announcement that property investors will pay an additional 3% stamp duty land tax from 1 April 2016.
3% almost looks harmless until of course you stop to remember that 3% of something costing £200,000 is £6,000!
The Government clearly has it in for landlords. Why? Because they’re an easy political target. You’re not going to see a revolt in the House of Lords to prevent these tax changes going through, like you did for child tax credits.
George Osborne seems to think that landlords are getting in the way of young couples who aspire to owning their own homes.
The increase will apply to purchases of “additional” residential properties (above £40,000), such as buy-to-let properties and second homes.
The higher rates will not apply to companies or funds making significant investments in residential property. The Government will consult on the policy detail, including on whether an exemption for companies and funds owning more than 15 residential properties is appropriate.
Investors considering purchases of residential property in the near future may be wise to consider completing their purchases before 1st April 2016 in order to avoid these increased rates.
This measure will not apply in Scotland where stamp duty land tax has been replaced by the land and building transaction tax.
Using a Company
The announcement on stamp duty land tax will have more landlords wondering whether they should set up a company. After all companies are exempt from the clamp down on interest tax relief and may be exempt from the stamp duty increase.
Furthermore, the Government has announced that corporation tax will be reduced from 20% to 19% in 2017 and then to 18% in 2020. Paying 18% tax on your rental income is clearly a lot better than paying 40% or even 45%. And paying 18% tax on your capital gains is clearly better than paying 28%.
Unfortunately, it’s not that simple because company owners have to pay additional tax when they withdraw money from their companies, usually as dividends. Dividend tax rates were increased significantly in the July Budget.
Furthermore, you can’t just flick a switch and transfer your existing properties into a company. There may be tax to pay on the transfer, although some landlords are exempt.
There may also be issues surrounding your existing mortgages if you transfer the ownership to a company.
Capital Gains Tax
At present if you sell a property close to the start of a tax year capital gains tax is only due around 22 months after the sale has taken place.
The Government wants your money quicker so from April 2019 CGT will have to be paid within 30 days of completion of any disposal of residential property.
There weren’t any other significant CGT changes affecting landlords in the Autumn Statement – I think we’ve had quite enough for a lifetime!
By Nick Braun, founder of Taxcafe.co.uk
Tax Café publish a range of unique and comprehensive UK property tax guides showing how to pay significantly less tax on your property investments and dealings. Written by Carl Bayley BSc ACA one of the UK’s leading property tax experts, they are in plain English and contain dozens of examples and a huge amount of invaluable tax saving advice that you simply cannot find elsewhere. How to Save Property Tax 2015 – just published – contains detailed guidance on all the major tax changes announced in 2015, including the restriction to landlord interest costs.
The 2015/16 Guide is available here: www.taxcafebooks.co.uk
Another Buy-to-Let Bombshell Budget – https://t.co/XfFcrwfjyP
— LandlordZONE (@LandlordZONE) November 27, 2015