The UK residential property landscape has changed dramatically over the past five years, particularly in relation to tax. From individuals looking to acquire a buy-to-let property, to businesses with large investment portfolios, most people have been affected. At UHY Hacker Young, we have extensive experience in advising on residential property.
The key aspects of residential property occupation and ownership are considered below.
Stamp Duty Land Tax (SDLT) on purchasing a property
Property purchases in England and Northern Ireland subject to Stamp Duty Land Tax (SDLT). In Scotland and Wales, separate taxes are instead due (Land & Buildings Transaction Tax for Scotland, Land Transaction Tax for Wales).
SDLT is charged at rates of between 2% and 12% for properties costing more than £125,000. It is the purchaser of the property who pays the tax. There are however reliefs available for first time buyers. Reliefs are also available where a portfolio of properties is purchased (known as multiple dwellings relief). We regularly find that these reliefs aren’t being claimed correctly (if at all), so please contact UHY if you would like to find out more.
Higher SDLT rates when purchasing an additional property
Where an individual acquires an additional residential property, or where a company purchases a property, additional SDLT charges of 3% may be due. There are reliefs available however e.g. if an individual’s main home is sold. Professional advice is recommended in order to correctly claim these reliefs.
For companies acquiring residential property, even higher SDLT rates (up to 15%) may be charged. Again, exemptions are available – for example, for properties used in a lettings business.
Restrictions on tax deductions for interest
From April 2017, tax relief for mortgage interest costs (for individuals) on residential properties is gradually being restricted for higher rate taxpayers. From April 2020, only basic rate tax relief will be available. For individuals wishing to build up a property portfolio using debt financing, this restriction of tax relief will severely impact profitability. Other structures may be better e.g. ownership of the property through a company, whilst also helping with estate planning. We can advise on the appropriate structure to suit your needs.
Annual Tax on Enveloped Dwellings (ATED)
Residential property worth more than £500,000 which is owned by a company may be subject to an annual levy of between £3,600 and £226,950 (for the 2018-19 tax year). Reliefs are available to reduce the ATED charges, however, an ATED return must still be submitted to HM Revenue & Customs to claim the relief. We can help with the submission of these returns and also in advising on the reliefs that are available.
Capital Gains Tax on selling a residential property
UK individuals are generally taxed at Capital Gains Tax rates of either 18% or 28% on the disposal of residential property. If the property has been their main residence however, relief may be available to reduce this capital gain. Usually, the disposal of a main residence by an individual will not suffer tax.
UK resident companies are subject to Corporation Tax at 19% on the disposal of property, however, if the property is charged to ATED (see above), tax charges of up to 28% may be due.
Inheritance Tax planning for residential property
Inheritance Tax (IHT) is chargeable at 40% on death on the value of assets held in the estate. A ‘nil-rate band’ (of £325,000) is available to reduce the value of the estate. From April 2017, an additional band of relief is also available in relation to an individual’s residence that is passed to direct descendants e.g. children and grand-children. The additional relief is £125,000 in 2018-19 and will increase to £175,000 in 2020-21. Where an individual ‘downsizes’, the additional relief may still be available on the value of the disposed property. The rules for the new reliefs are extremely complicated, therefore, professional advice is highly recommended.
The next step
For more information about the services we offer our clients in the property sector, please contact one of our advisers today.
Alternatively, visit the property sector page on our main website.