Recent tax changes for UK property investor
The Chancellor announced a wide range of tax measures in the Spring 2021 Budget, with a particular emphasis on stimulating capital spending as a means of achieving economic recovery. Despite the announcement of revisions to the corporate tax rate, there was no rise in the capital gains tax (CGT) rate; however, this could be reviewed in the future.
In recent years, significant tax adjustments have been made in respect to the UK property market. These changes are likely to have affected the majority of UK property owners, whether individuals or corporations, UK citizens or non-residents, and whether the properties are held for investment or trade reasons.
Below is an overview of some of the more recent changes that have been announced in relation to the UK property market.
Stamp duty land tax (SDLT)
Stamp duty land tax (SDLT) applies to acquisitions of property in England and Northern Ireland with the rate varying according to the value of the property and whether it is residential or non-residential.
Stamp duty land tax (SDLT) holiday extension
On 8 July 2020, the Chancellor announced an immediate SDLT holiday until April 2021 on the first £500,000 paid for a residential property in England or Northern Ireland. In the latest Budget, the Chancellor extended the SDLT holiday until 30 June 2021 which has now just expired. In addition, the nil rate band will not immediately revert to the previous level of £125,000 from 1 July 2021; instead, the nil rate band will be maintained at £250,000 until 30 September 2021, after which it will revert to £125,000.
The existing 3% additional SDLT for buyers of second homes, corporate buyers and other property investors will also remain.
Do non-UK residents pay more stamp duty?
Furthermore, beginning April 1, 2021, a 2% premium for non-UK citizens has been levied to residential property purchases. In addition to the existing SDLT rates of up to 15%, it affects both non-resident individuals and non-natural persons (e.g. businesses, trusts, partnerships). To put it another way, the highest rate for non-residents may be as high as 17%. (Scotland and Wales have their own regimes).
New rules for residential property disposals
From 6 April 2020, taxable capital gains made by UK-resident individuals, trustees or personal representatives of a deceased person on the disposal of UK residential property must be reported to HMRC within 30 days of the completion date. For these purposes, a disposal will include gifts in addition to sales of such property. Payment of the estimated CGT arising on the disposal(s) must be made within the same 30-day deadline.
There are a number of exceptions to the new reporting and payment rules for disposals by UK citizens, such as when no CGT is due on the sale.
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Non-resident immovable property gains
Prior to 6 April 2019, non-UK residents were not subject to CGT in disposals of UK immovable property except in relation to certain disposals of residential property or where a trade was being carried on through a permanent establishment in the UK. However, the scope of the UK tax net dramatically widened from 6 April 2019: non-UK residents are now subject to UK tax on gains on all direct and certain indirect disposals of interests in UK immovable property, subject to certain exceptions.
The new rules apply to all disposals of UK real property by non-residents that have not previously been within the scope of UK tax e.g. UK commercial property.
Corporation tax changes
As part of the Budget, it was also announced that the rate of corporation tax will increase from April 2023 to 25% on profits over £250,000. The rate for small profits under £50,000 will remain at 19%, and there will also be relief for businesses with profits under £250,000. This rate change will impact UK resident companies and also non-UK resident company investors in UK property.
Business rates holiday
The existing rates relief for tenants has been extended by the Chancellor. The reliefs will continue to reduce business rates payments in these sectors by up to two-thirds until March 2022 for qualified retail, leisure, and hospitality enterprises until July 2021.
The relief has been addressed to small and medium-sized firms who have been forced to close as a result of the coronavirus outbreak.
Is there any incentives to encourage investment in freeport tax sites?
Tax reliefs have also been announced to encourage investment in eight freeport tax sites in East Midlands Airport, Felixstowe and Harwich, Humber, Liverpool City Region, Plymouth & South Devon, Solent, Thames, and Teesside. This measure will enable tax sites in Freeport locations to be designated and recognised in law as geographical areas where businesses can benefit from Freeport-specific tax reliefs, such as:
- relief from SDLT on the purchase of land or property within freeport tax sites in England
- business rates relief in freeport tax sites in England
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