15 January 2016
Since the Summer 2015 election the wholly Conservative government has announced a number of surprise tax policies and some of these have provoked unusually strong public reactions.
Buy to let tax hikes
Buy to let landlords are one group feeling particularly aggrieved at present. The Summer Budget announced that the long standing wear and tear allowance for furnished properties stands to be scrapped with effect from 6 April.
The Autumn Statement then announced a 3% Stamp Duty Land Tax (SDLT) levy on purchases of second properties by individuals or investment properties by others. 3% is usually a relatively modest tax increase, but for SDLT this means that the charge on a £250,000 property quadruples from £2,500 today to £10,000 after 1 April 2016. This policy is open for consultation until 1 February and we are anticipating a raft of objection to the changes from both directly affected taxpayers and also the industry associations. Given the timeframes involved we hope this is a genuine consultation and that the measure will be, if nothing else, deferred for a year to allow time to give proper consideration to the measure and at least a chance of some decent legislation being drafted.
Finally, there is the restriction of tax relief on mortgage interest for landlords, scheduled to be phased in between 2017 and 2020. Many commentators are drawing parallels to the staged removal of tax relief for homeowner mortgages, questioning whether this is the thin end of the wedge. This policy, it seems, is a bridge too far and as well as the tabloid stories, such as the Kent couple selling their entire 900 property portfolio, a group of prolific landlords have now collaborated to launch a Judicial Review to challenge the legality of the proposed change.
Crowd-funding raised the initial £50,000 required within a matter of days. We have significant sympathy with this group’s cause and the representations on this matter made by the ICAEW contained much criticism including repeatedly noting the proposals were neither fair nor reasonable.
Quarterly tax reporting for small businesses (including landlords)
The other people who have responded unusually strongly are small business owners, in reaction to suggestions within HMRC’s ‘making tax digital’ document that quarterly tax reporting will be required by the Summer of 2018. This policy is less black and white. It is a part of a wider policy document mapping out the administration of tax over the course of the current Parliament. The Institute of Fiscal Studies has long bemoaned the absence of longer term thinking in tax policy due to the political pressures and changes inherent in our system of government.
Taking the positives first, it is great to see the civil service acting more commercially in publishing medium term strategy plans and using staged implementation to get there. Undoubtedly in 30 years tax will need to be almost fully digital, and it makes perfect sense to start working towards that as soon as possible. I would say that most of the digital changes that I have experienced in this profession have ultimately been positive.
However, it was astonishing to hear the counter arguments that HMRC have allowed to be published to the petition launched by taxpayers to force this issue to be debated in Parliament. The lack of understanding of how tax reporting is dealt with by the overwhelming majority of small businesses was truly amazing.
“Updating HMRC through software or apps will deliver a light touch process, much less burdensome and time-consuming than it is today.”
“In most cases, little or no further entry of information will be needed.”
Whilst the 107,000 or so signatures on the petition looks like something of an armchair crusade when compared to the Judicial Review launched by landlords, this policy is still in its infancy and forcing a discussion in Parliament may well generate sufficient pressure to force some further collaboration and consultation as to how the digital strategy is implemented in the coming years.
We have linked some of the source documents at the foot of this blog, for your reference.
We will of course keep you up-to-date with any further progress but in the meantime, if you would like to discuss how either of these changes might impact upon you, please contact myself or your usual UHY adviser at your nearest location.
Petition – https://petition.parliament.uk/petitions/115895
Judicial Review group – www.crowdjustice.co.uk/case/clause24
Making tax digital – www.gov.uk/government/publications/making-tax-digital