Introduction:
There is always a tendency for Estate Agents to try to be first out with their views on any Budget or Autumn Statement. At Maskells, we wait until HRMC have published the detail so that we can hopefully provide you with more than just a headline. As with all matters to do with Tax and Law, please do not rely on our comments and take professional advice before entering into any transaction. We start with our commentary and then list the Key Points which have been provided by Charles Russell Speechly's. We would like to thank Piers Master , Partner at Charles Russell Speechlys, and Camilla Wallace, Partner at Wedlake Bell for their insights (and explaining it to us!)
Commentary:
The Chancellor, standing at the despatch box in Parliament, has been a cause for concern for the property industry over the past few years. This year was no exception as we braced ourselves for the latest onslaught of legislation which would further impact our market. We did however feel quite relieved at the end of the speech and yet as we delved into the detail, there were a few items which were more complex than originally thought and others which were not included in his speech.
The Government needs to decide what it is doing with property. The rhetoric suggests that they are seeking to control house pricing to allow more people the ability to acquire homes yet at the same time, not reducing CGT on the sale of secondary or buy-to-let homes will almost certainly mean fewer potential homes in the secondary market. As we know, additional supply will dampen prices so why the caveat in the new CGT regulation? There may be 2 reasons - the first, is that Landlords (like Bankers) seem to have attracted the wrath of this particular government and they do not want to see them enjoy windfall gains on property sales. The Second is that a large supply of secondary homes may well push prices down, affecting the value of assets on bank balance sheets - a topic we have written about extensively.
Nevertheless, we do hope that the Government will now leave the property market alone as continued tinkering creates uncertainty - something into which very few will invest.
The following Key Points are provided by Charles Russell Speechly's:
Capital Gains Tax (CGT)
- The government will reduce the higher rate of CGT from 28% to 20% and the basic rate from 18% to 10%. The 28% and 18% rates will continue to apply for carried interest and for chargeable gains on residential property. These changes will take effect to disposals of assets on or after 6 April 2016.
- Entrepreneurs’ relief will be extended to long-term investors in unlisted companies. The new rules will apply to newly issued shares purchased on or after 17th March 2016.
Stamp Duty Land Tax (SDLT)
- A 3% surcharge will now be applied to purchases of second and additional properties. Key points from this legislation:
- There is no exemption for large-scale investors, as had been suggested by the original consultation. However, purchase of six properties in a single transaction can still be taxed at the commercial rates, which in some cases will be more favourable than the residential SDLT rates. Great care is needed about taking advantage of this relief, however.
- Properties owned anywhere in the world (and not just in the UK) will be counted in determining whether a property purchase is caught by the surcharge
- If you buy a new main residence before selling your old one, then on completion you are liable for the surcharge. However, provided you dispose of your previous main residence within 36 months (increased from 18 months in the original proposals) you can claim a refund of the surcharge. If you sell your main residence before buying a new main residence, there is no surcharge on the purchase, provided this takes place within 36 months (increased from 18 months in the original consultation) of the completion date of your sale.
- Married couples who are separated may each purchase a residential property of their own without the surcharge applying provided the separation is likely to be permanent.
- The surcharge is not applicable to the purchase through a company of an owner occupied property for over £500,000. Such a purchase is already subject to a penal rate of SDLT of 15%.
Non-UK domiciliaries
- The government did not shed much further light on the major reforms to non-dom taxation announced in the Summer Budget 2015 save, broadly, that they are: (i) pushing on with their plans to charge inheritance tax on all UK residential property indirectly held through an offshore structure from 6th April 2017; (ii) as may be expected, individuals who expect to become deemed UK domiciled under a new ‘ 15 out of 20 year rule’ will be subject to transitional provisions with regards to offshore funds to provide certainty on how amounts remitted to the UK will be taxed; (iii) that UK born individuals with a UK domicile of origin (typically someone born in the UK to British parents) will ‘revert to their UK domiciled status for tax purposes whilst resident in the UK’ (as previously indicated); and (iv), perhaps most interestingly, that there will be a re-basing of offshore assets as those non-doms who become deemed domiciled in April 2017 can treat the cost base of their non- UK based assets as being the market value of that asset on 6 April 2017 (which is welcome news but we shall need to see the details to see how useful this provision will be in practice.
Residence nil-rate band (RNRB)
- As expected, ‘downsizers’ who cease to own a home on or after 8th July 2015 may still benefit from the new residence nil rate band that comes into play from 6th April 2017, broadly when assets are passed on death to direct descendants. This is good news but the legislation is complex and it would have been a lot simpler to have raised the existing nil rate band. Indeed, because of the way that the RNRB works, for estates worth approximately 2.35 Million GBP (for single individuals) or 2.7 Million GBP (for a surviving spouse), we expect that the benefit of the RNRB will be lost in any event by virtue of tapering rules.
Offshore Property
- New rules have been announced that target offshore property trading and development planning. The Jersey, Guernsey and Isle of Man double taxation agreements with the UK have been amended with immediate effect to allocate taxing rights to the UK in respect of UK real estate and a specific new charging provision will be implemented that taxes profits from disposals of UK property by non-UK residents, irrespective of whether the non-UK resident entity trades through a permanent establishment in the UK. That charging provision will apply to disposals that occur on or after the date the legislation is introduced in Parliament at Report Stage (expected to be in June 2016), but there will be transitional rules to prevent forestalling after Budget Day.