Pre-tax year end planning for property owners

09 February 2016

Gary Heynes 

With the end of the tax year approaching, those thinking of buying a residential property - either as a new home, a second property for their own use, or as a buy-to-let - may need to take action quickly to beat the new tax rules which apply from 1 April 2016.

Stamp duty land tax (SDLT)

A new 3 per cent supplement will apply to SDLT ( land and buildings transaction tax or LBTT if in Scotland) rates from 1 April for those buying second homes in the UK. This will also affect those buying a UK property where they already own another property anywhere in the world.

In particular, this will impact on purchases of:

  • buy-to-let properties;
  • second (holiday) homes; and
  • new main homes (where the existing home hasn’t yet been sold, unless it is then sold within 18 months).

HMRC’s own example shows this will double the SDLT charge (from £3,750 to £7,500) for those buying a property for £200,000 - somewhat under the average price of a UK property.

Transactions must be completed before 1 April to beat this increased SDLT charge, unless the exchange took place on or before 25 November 2015 (the commencement date of this new charge). While this change is intended to limit the purchase of second properties and free up the property market, it’ll impact some very ordinary scenarios. For example:

  • those moving within the UK for work or family reasons who aren’t selling their existing home;
  • those owning a holiday home overseas and buying a property in the UK (this could include simply moving home in some circumstances);
  • those moving to the UK, perhaps to work for a few years or repatriating to the UK, who still own their overseas home;
  • a partner in a partnership business who is buying a property, where the partnership owns residential property; or
  • parents buying a property for their children, where the parents retain an element of ownership

The final SDLT rules are due to be announced on Budget day, but apart from some minor changes, we expect them to be applied largely as set out above.

Other direct tax changes for landlords…

It’s worthwhile noting that the 10 per cent ‘wear and tear allowance’ for landlords of furnished properties is removed from 6 April, and a deduction will only then be available as furnishings are replaced. So, if you’re considering replacing white goods and furnishings, it’s best to wait until after the start of the new tax year. Also, from 6 April 2017 relief for finance costs on residential properties will gradually be restricted so that, by 6 April 2020 relief will only be available at the basic rate of income tax.

For further information please contact Gary Heynes or your usual RSM contact.