Since MIPM 2016 the residential investment market has borne the brunt of tax changes, further increasing the cost of investing in UK property.
What has been the impact on residential landlords?
- Stamp Duty Land Tax (SDLT) on corporate acquisition or second homes has increased by three per cent surcharge.
- Phasing out of interest relief for private landlords holding residential property directly. Some landlords may find themselves with a tax bill despite the residential portfolio not generating enough cash to pay the tax.
- From next month, shares in offshore companies held by non-UK domiciled individuals and offshore trusts holding UK residential property will be exposed to UK inheritance tax (IHT). This is a major change is a disincentive in non-domiciliaries investing in UK residential property
- Higher ATED charges for personal use of residential property.
What other changes are affecting the sector?
Legislation has been introduced to tax the profits offshore developers and dealers in UK real estate. This enables UK resident property traders to compete on an equally footing, but may deter foreign investment from building new homes.
Restrictions on interest relief for UK companies might increase the tax rate for a property group. It provides a complex method of calculation and adds further compliance costs for companies to manage their tax affairs.
Currently the above applies to companies subject to UK corporation tax, however it is likely to be extended to non-UK companies soon.
Looking back at the past five years, the tax landscape is barely recognisable. UK capital gains tax on disposal of residential property has been introduced. Additionally, annual charges for residential property held in corporate wrappers, the death of tax efficient offshore development structures and the introduction of IHT for owners of companies holding UK residential property.
Whilst the government’s focus has been on residential property, the elephant in the room is whether tax on commercial property might radically change going forward.
Some argue these changes put the UK on a more comparable footing with our overseas neighbours. The UK still has a competitive advantage by not taxing capital gains on commercial property and the impact of weaker sterling exchange rate has made investments more attractive. However the level of economic uncertainty and the rate of change in tax law have left some international investors feeling nervous as to how these tax assumptions may stand the test of time.
For more information please get in touch with Adrian Benosiglio, or your usual RSM contact.