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Spring Statement – what can be expected for property businesses?

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Ahead of today’s Spring Statement, we wanted to take a closer look at what changes may be coming for property businesses.

Whilst I’m expecting few tax changes to be announced within the Spring Statement, as these should be reserved for Budget Day later in the Autumn, there are some changes that have already been announced.

SDLT changes

A consultation into Stamp Duty Land Tax was issued on 30 November and is back with HMRC for their thoughts. The consultation proposed reforms to the rules for calculating SDLT on acquisitions of mixed-use property and the application of multiple dwellings relief (MDR). A quirk in the rules has meant that some property purchases such as large houses with a granny annex, or shops with flats above could result in much lower SDLT. This has led to a rash of tax reclaims and tax cases.

HMRC has proposed an apportionment method for mixed properties and various possible options to amend the existing MDR rules; for example, by allowing MDR only for purchases of three or more dwellings and ignoring subsidiary dwellings for MDR purposes.

The next steps should be an indication of proposed changes and another round of consultation before any of these are brought into legislation.

In summary, if you are buying property which could currently benefit from these reliefs, whilst I think the rules will survive next week’s Spring Statement, their days are numbered.

Annual Tax on Enveloped Dwellings (ATED) – revaluation date

ATED means that companies owning expensive UK residential properties may have to pay an annual charge if:

  • the market value of the property is more than £500,000 on the “Valuation Date” for the property.

The valuation date is either the ‘standard’ valuation date – initially 1 April 2012, with a revaluation being required on each five-year anniversary (1 April 2017, 1 April 2022 etc) or if later than the standard valuation date, the value on the date of purchase or part disposal of the property is used.

1 April 2022 is a revaluation date meaning that those companies with properties could find that properties that were previously below £500k and outside of ATED are now within it, or the amount of ATED payable is set to increase.

The valuation is self-assessed, meaning that you will be required to value the property either personally or with professional help and HMRC could charge penalties if they decide to look at the valuation and find that it is incorrect. HMRC will undertake Pre-Return Banding Checks (PRBC) for those who reasonably believe that their property valuation falls within 10% of a band threshold.

Reliefs are available to reduce these amounts. For example, relief may be available where the property is let out to unconnected parties on a commercial basis, is stock within a property development business or is open to the public for 28 days per year.

Reliefs must be claimed within the appropriate timescales or will potentially not apply. Please contact us if you are at all unsure of your ATED position.

Residential Property Developer Tax

There is also a new 4% Residential Developer Tax that will apply from 1 April 2022 to large housebuilders with profits over £25m.

Property Income Review

A scoping document for a Property Income Review has recently been issued and may indicate a direction of travel for future changes.

The Property Income Review is published by the Office of Tax Simplification (OTS), an independent adviser to the Government on tax simplification, offering suggestions for the Government and Parliament to act upon if they choose to.

The review will apparently aim to identify opportunities to simplify the tax and administrative treatment of those receiving income from residential property, whether an individual, a partnership or a micro company (but not larger companies or REITS). It will also aim to improve taxation, simplify processes and develop relevant recommendations based on this.

Making Tax Digital for Income Tax is due to come in from 2024, meaning landlords will need to keep their records digitally and file quarterly income tax returns (as well as a final property return and potentially also a self assessment return!). This review has no doubt been prompted with an eye on making that system more workable and palatable to the many landlords that will be affected.

The OTS will be guided by a range of recent research, including that of relevant international experience, considering all the implications that their recommendations could have on the Exchequer, the tax gap and compliance. A big aim will be to stay consistent with good tax procedures and with fairness and efficiency in mind.

The OTS will publish a Call for Evidence and an online survey next.