12 December 2018
Property tax was well-covered in October’s Budget, with headline-grabbers including; the reduction of the final period of deemed residency for those not occupying their principal residence prior to its sale from 18 months down to nine months, and changes to lettings relief so that it only applies in circumstances where the owner of the property is in shared occupancy with the tenant. Quite rightly these did grab the headlines, but there are plenty of other issues affecting the property sector that may have slipped under the radar.
From Income Tax to Corporation Tax
UK property income of non-UK resident companies will move over from paying Income Tax to paying Corporation Tax from 6 April 2020. This seems positive as the rate of tax is lower, but Corporation Tax does include greater restrictions as an example on the tax relief of interest.
The headline is the increase from £200,000 annual investment allowance to £1 million from 1 January 2019 for two years. Care is needed on the periods of account which straddle this date. This means a greater benefit for commercial landlords on their annual expenditure, but in bringing this in, other changes are not so welcome.
Also, there was a reduction in the rate of writing down allowance on the special rate pool of plant and machinery (including long-life assets) thermal insulation, integral features from 8% to 6% from April 2019.
The end of 100% allowance on products bought on the energy and water technology lists is a change that is very welcome news.
Structure and Buildings Allowance
After abolishing industrial building allowances some years ago, the Government has introduced a replacement. The replacement is to be known as the Structure and Buildings Allowance and will apply to new non-residential structures and building relief on eligible construction costs incurred on or after 29 October 2018, at the annual rate of 2%, on a straight line basis.
VAT on provision of labour in construction industry
Another major change from 1 October 2019 is the change to VAT on the provision of labour in the construction industry. This involves the introduction of reverse charge, rather than the subcontractor charging VAT.
Capital gains application to landlord building disposals
Capital gains for non-residents on UK property will include all landlord building disposals from April 2019. This change also includes indirect disposals – where a person makes a disposal of an entity (e.g. a Company’s shares) that derives 75% or more of its gross asset value from UK land. There will be an exemption for investors in such entities holding less than 25% interest. For companies, this tax will be paid through the Corporation Tax system.
There will be options on the calculation of the gain – use the original cost of the value at April 2019.
Legislation has been introduced to collect capital gains tax on the disposal of property. UK residents will have to make a return and pay the tax within 30 days of the sale of a residential property anywhere in the world. Properties covered by the principle private residence do not need to do a return.
SDLT – First Time Buyer’s Relief
Yet more amendments to SDLT – First Time Buyer’s Relief has been extended to share ownership properties. This has been backdated to November 2017 – so refunds can be sought.
Also, the time allowed to buy a new residence, sell the old and reclaim the higher rate for additional dwellings has been extended to three years.
But the Chancellor is looking to increase SDLT for non-residents buying residential property in England and Northern Ireland. This is currently under consultation.
For more information on how these changes to property tax could affect you, contact me or your local UHY tax adviser.