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The property sector needs the Chancellor to cut it some slack in the forthcoming Budget and put a brake on some of the change says Chris Springett, partner and buy-to-let lead at Smith & Williamson.
There have been seismic changes to the taxation of property in the UK over the past few years and, as the new tax year approaches, this rate of change seems set to continue.
The much talked about changes to the taxation of buy-to-let income of individuals are set to begin in April but, perhaps more pressingly, the new tax year marks the beginning of the Government’s plan to digitalise the tax system using Making Tax Digital (MTD).
The Chancellor should take this opportunity to defer the compulsory start of Making Tax Digital (MTD) to allow landlords the opportunity to pause and take stock of their situation. If the Government wants to drive behavioural change through taxation then it needs to ensure taxpayers are aware of the issues. So far it has not highlighted the sea-change that MTD will have upon taxpayers.
Making Tax Digital (MTD) includes a plan to introduce digital record keeping and quarterly, online tax reporting. During 2017 a public pilot starts for the self-employed and landlords will then be able to make quarterly tax submissions detailing their business and rental income as well as annual updates. From April 2018 this is expected to be mandatory for most self-employed and landlords.
In 2019 this is due to include VAT and, from 2020, Corporation Tax submissions.
Although the Government is considering both raising the turnover threshold for MTD from the pre-announced £10,000, and a deferral of the mandatory start date for those with turnovers in a band just above that, there are still expected to be thousands of individual landlords who will be caught by these changes.
We’re finding that many are simply not aware of their requirements and, that if they had known they would need to make at least four submissions a year, would have reconsidered the viability of their buy-to-let investments earlier.
In order to comply with MTD landlords will need to maintain, or have maintained for them, records using compatible software. This will in many cases mean changes in record keeping together with the working relationships and amount of interaction with property agents and accountants.
April 2017 also sees the start of the phased restriction of buy-to-let interest relief and follows the alterations to SDLT and a reform of the wear and tear allowance. Other recent changes include those to the annual tax on enveloped dwellings (ATED), the scope capital gains tax (CGT), the difference in CGT rates and the changes to taxation of non-doms, some of which relate to residential property.
The former Chancellor, George Osborne frequently tinkered with taxation of the property market, attempting to use this to influence behaviour. However, taxation is not the only key issue affecting UK landlords. We’re going through a highly uncertain economic. Property owners and the rental market need a period of stability, not further change.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
The tax treatment depends on the individual circumstances of each client and may be subject to change in future.
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