Budget 2015 Impact On The Property Sector

Entering the new year 2016, it is appropriate to look at how residential property in the UK is taxed.

Capital gains tax and Non residents

The charge to capital gains tax on non-residents was applied on 5th April 2015, the main points are:-

• The charge applies to residential property only, i.e. not to commercial property.
• Non-resident individuals, trustees and companies are all affected.
• Offshore companies pay tax at 20% to the extent that the gains are not "ATED-related".  Offshore companies can also benefit from an indexation allowance, i.e. an allowance for inflation.
• Individuals pay tax at 18% or 28% depending on the amount of the gain and the level of their UK income.  Depending on their circumstances, they may also be able to claim an annual CGT exemption (currently £11,100).
• Individuals (and potentially trustees) may be able to claim main residence relief in respect of tax years during which they (or a beneficiary) spent at least 90 nights in the property.
• Disposals need to be reported to HMRC within 30 days of the disposal using form NRCGT.

ATED Changes

A new ATED band was introduced in April 2015 to bring enveloped properties worth more than £1million and less than £2million into the scope of the ATED rules.  The charge for the first year for properties falling within the new £1million band is £7,000.

The widening of the ATED bands to properties worth more than £1m and less than £2m from 1 April 2015 and to properties worth more than £500,000 but less than £1m from April 2016 was first announced by the Government in the 2014 Budget.  

The amount of ATED payable in relation to residential properties worth more than £2m increased by 50% in addition to inflation (despite the Government originally announcing the increase would be 50% above inflation which produces a very different result) for the chargeable period 1 April 2015 to 31 March 2016. These increases were announced by the Chancellor, George Osborne, in the 2014 Autumn Statement last December.

Non Resident landlords

• If you are non UK tax resident yet own property in the UK you will be liable to tax on the rental income, less any qualifying expenses.  You therefore need to register with HMRC and submit an annual self-assessment form.
• In most cases you will be eligible for the annual personal allowance each year currently £10,600, which you will be able to set against the profit.
• Either the letting agent you use or the tenant if you do not use one is obliged by law to deduct 20% tax from the gross rents paid and to pay this over to HMRC to be set against your eventual liability.  However, you are able to apply for the Non-residents land lords’ scheme.  Under the scheme no tax need be deducted by the agent or tenant and you pay any tax through self-assessment.
• Even if there is no tax liability you still need to complete a self-assessment return each year.

Capital Gain Tax and only or main residence relief

Under capital gains tax rules if your sell a private residence it is taxable in the normal way unless it was your principle private residence.  Where you owned two properties you could elect which one would be covered, provided you acted in the time frame laid down.

Under the rules which took effect on 5th of April 2015, a claim is only possible if one of the following conditions is met: -

• The individual is resident in the same country as the property he wishes to make his only or main residence.
• They spend at least 90 nights in the property.

These rules were introduced to prevent non-residents simply claiming the UK property as they principle residence.

Council tax

Once you own a property there is a liability to pay council tax, this tax replaced the old system of rates some years ago.  The liability falls upon the person living in the property, so if you rent a property the tax is normally to be paid by the tenant.

If a person lives in the property alone a single person discount of 25% is available.

The amount of tax you pay depends on which band your property falls into.  Each property is valued and put into a band ranging from A to H.  Houses in band A will pay less than houses in band H.

We have taken great care to ensure the accuracy of this article. However, the article is written in general terms and you are strongly recommended to seek specific advice before taking any action based on the information it contains. No responsibility can be taken for any loss arising from action taken or refrained from being taken based on this article