Posts with tag: property tax

Are property taxes creating unnecessary barriers?

Published On: September 30, 2016 at 8:59 am

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A new survey suggests that 70% of UK-based property and construction businesses see the tax system as unhelpful to the industry.

The study, conducted by audit, tax and advisory firm, Crowe Clark Whitehill, reveals that 68% of respondents see Stamp Duty Land Tax as the largest barrier to tax growth. 12% saw Capital Gains Tax as the biggest obstacle.

Future

Providing a yearly outlook for the industry, the report uncovered substantial expectation that residential new builds in London will be worst affected by the downturn in the market.

Almost half of respondents believe redevelopment of brownfield sites could be the future of the London property market.

Are property taxes creating unnecessary barriers?

Are property taxes creating unnecessary barriers?

Overhaul

Stacy Eden, head of property and construction at Crowe, observed: ‘an overhaul of the tax system must be high on the Government’s agenda. A reduction in the tax burden will fuel growth and encourage investment. Cuts to SDLT should be the first step towards this, as we are already seeing the negative impacts of the recent raises on the property market.’[1]

‘Simplification to the planning process to promote efficiency and initiatives to regulate the market are also required. Ensuring that brownfield sites are available for development is crucial-and there is clear demand for this within the industry.’[1]

Concluding, Eden said: ‘decisive action is needed as the lingering uncertainty from Brexit is hampering confidence. We need to ensure long-term international competitive of our market and that Brexit does not reduce investment into real estate.’[1]

[1] http://www.propertyreporter.co.uk/finance/are-property-taxes-the-biggest-burden-to-the-market.html

A Guide to New Inheritance Tax Rules on Residential Property

Published On: September 6, 2016 at 9:49 am

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The Government has recently provided guidance on its new Inheritance Tax (IHT) rules on UK residential property.

The CEO of London Central Portfolio (LCP), Naomi Heaton, explains the changes:

“The Government has recently published their proposals, currently under consultation, for sweeping legislative reforms for non-UK domiciled individuals (non-doms). Alongside other far-reaching changes, new rules are being proposed, specifically relating to residential property, which seek to redress the perceived imbalance between IHT charges on UK domiciles and non-doms holding such property in offshore (non-UK) structures. Initially announced during the 2015 summer Budget, speculation that these proposed changes would be dismissed following the UK’s vote to leave the European Union have not come to bear.

“Given LCP’s focus on lower value units, sub £1m, targeting the mainstream private rented sector, many of our private clients will remain broadly unaffected by the new measures. With steps already having been taken to maximise tax efficiency through prudent use of leverage, the use of offshore structures, which come with high establishment and running costs, has increasingly been avoided. This means the new IHT rules may have no impact on future tax planning.

“There is good news too for those investing through the property funds advised by LCP and for those looking for an alternative and tax efficient solution to holding UK residential property directly. As with other recent legislative changes, such as the introduction of non-resident Capital Gains Tax (CGT), where an exclusion has been made for diversely held vehicles, there will be a similar exclusion from the new IHT rules. These exclusions reflect the Government’s move to encourage the institutionalisation of the private rented sector.”

So what is Inheritance Tax?

IHT is a tax on the estate (including the property, money and possessions) of someone who has died. The new IHT rules for non-doms only apply to residential property owned in closely held offshore structures.

IHT rates

IHT is charged on an estate at 40%, subject to certain exemptions. The estate can pay IHT at a reduce rate of 36%, if the person leaves 10% or more of the net value to charity.

A Guide to New Inheritance Tax Rules on Residential Property

A Guide to New Inheritance Tax Rules on Residential Property

IHT for non-doms is charged solely on their UK-situated assets. Non-doms who have been resident in the UK for 17 out of the last 20 years can become deemed domiciled for IHT purposes. From April 2017, non-doms will become deemed domiciled in the UK for all tax purposes after 15 years of residence.

There is also a minimum threshold before IHT becomes payable. This means that a proportion of your estate may fall within the nil rate band, which currently stands at £325,000 per person or £650,000 for a married couple. This exemption applies to every shareholder in an offshore structure. Under current rules, any unused nil rate band can be transferred to a surviving spouse or civil partner.

An additional nil rate band (on top of the existing bands listed above) will be available from the 2017/18 tax year for property used as a main residence. This will stand at £100,000 (£200,000 per couple) initially and rise to £175,000 (£350,000 per couple) in 2020/21, subject to certain restrictions.

For properties held by offshore trusts or in offshore trust/company structures, a charge of up to 6% of the market value of the UK residential property can be levied on the ten-year anniversary of the trust.

The new rules 

Under the Treasury’s proposed rules, from April 2017, the scope of existing IHT legislation will be expanded to look through offshore structures and catch underlying UK residential property assets, which were previously outside the scope of IHT. The measure will apply to UK residential property of any value and regardless of whether a property is rented or owner-occupied.

The new tax will apply to any chargeable event taking place after 5th April 2017, with no grandfathering for existing structures. In line with current rules, gifts made more than three years before the death of a donor are expected to attract taper relief.

The current definition of a chargeable event includes:

  • The death of an individual who held shares in an overseas close company that holds UK residential property.
  • The death of a donor making a gift of shares in a close company that holds UK residential property, where that gift was made within seven years of death.
  • Any ten-year anniversary of a trust holding UK residential property through an offshore company.

In the same way as non-resident CGT, the IHT charge for mixed-use property, such as a building that is used for residential and commercial purposes, will be proportioned to the extent of the property’s residential use.

Exemptions from the new rules 

Other types of property: The Government has made it clear in its proposals that only UK residential property will be included in the extended scope for non-doms holding assets in offshore vehicles. All other assets, including commercial property, will not be affected.

Property funds and diversely held corporate vehicles: While tax legislation is subject to change, as with other recent extensions to taxation on UK residential property, an exemption has been made for property funds and other vehicles with genuine diversity of ownership, such as the property funds advised by LCP.

Outstanding leverage on property: In line with current IHT rules, the new charge will apply only to the net value of the residential property, taking any relevant outstanding debts into account. These are debts that relate exclusively to the property, such as the amount outstanding on a mortgage. The debts are subject to current rules requiring the debt to have been in place at the point of purchase and also disregard any debts from connected parties.

De-enveloping considerations

Investors considering de-enveloping following the new announcements should seek tax advice regarding other potential implications, as the UK Government has decided not to offer incentives to those looking at unwinding their structures.

Liability and accountability 

The UK Government is planning to extend reporting responsibility in the following ways:

  • Extending HMRC’s powers to impose IHT on indirectly held UK residential property, such that the property cannot be sold until any outstanding IHT is paid.
  • A new liability on any persons who have legal ownership of property (including directors of a company that holds UK residential property) to ensure that IHT is paid.

Final details of the new IHT rules will be published in October and included in the 2017 Finance Act. LCP reminds everyone that changes may be made to the existing proposals before implementation.

Taxman recoups £301.8m in unpaid tax

Published On: December 1, 2015 at 2:45 pm

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Private client law firm Collyer Bristow has estimated that the British taxman snared £301.8m in unpaid property tax during the last year. This has been called an aggressive clampdown on those who actively avoid paying stamp duty.

HMRC’s new Counter Avoidance Directorate collected the monies during the last twelve months as part of an increased no nonsense policy on Stamp Duty and Land Tax (SDLT) avoidance.

Success

The firm said that this data was provided to them by HMRC and indicates that the scheme is proving a success. The Counter Avoidance Directorate was set up in April 2014, with the intention of bringing together HMRC’s work on tax avoidance and policy.

James Badcock, partner at Collyer Bristow, noted, ‘the Government’s aggressive clamp down on SDLT avoidance schemes over the last few years is now bearing fruit. The high returns from compliance investigations mean that this area is likely to remain under the spotlight for some time to come.’[1]

He went on to point out that property values have soared over recent years, particularly in London and the South East. As a result, many taxpayers have seen a more substantial SDLT bill.

Taxman recoups £301.8m in unpaid tax

Taxman recoups £301.8m in unpaid tax

‘Avoidance schemes were being used to reduce SDLT on what for London are relatively modest properties in the £1m region as well as very high value properties. As well as the Government closing down schemes with legislation, HMRC has tackled previous planning through the disclosure regime, better resourced investigations and litigation,’ Badcock continued.[1]

Advice

Mr Badcock also observed that in many cases, there is likely to be a legal justification for transactions that allowed an SDLT liability to be missed. ‘Individuals who decided to engage in the planning because it seemed so easy at the time may not have the stomach for the fight once faced with a HMRC challenge. This can be expensive but another critical factor is a climate in which engaging in abusive tax avoidance can cause reputational damage to those in the public eye,’ he said.[1]

[1] http://www.propertywire.com/news/europe/uk-property-tax-crackdown-2015120111265.html

 

MPs Discuss Labour’s Mansion Tax

Published On: January 20, 2015 at 3:22 pm

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Ed Miliband’s mansion tax plans have been in turmoil after Labour revealed homeowners will have to wait until after the general election to determine how much they would be charged.

Senior members of the party publicly challenged each other over the policy, as concerns grew over how much the tax would raise for the NHS.

Yesterday, Ed Balls denied accusations by Lord Mandelson that people would be “clobbered” by the tax on properties worth more than £2m. However, the shadow chancellor did not reveal how much people living in the most expensive homes would have to pay.

As the party divided over the issue, Labour MPs said the tax would “not begin to pay for” the thousands of nurses they claim they will fund.

Mr Balls criticised Lord Mandelson after he called the proposals “crude” and “short-term”. Lord Mandelson says that he prefers the Liberal Democrats’ plans to introduce more council tax bands, which he claimed would be better than “just sort of clobbering people with a rather sort of crude short-term mansion tax.”1

Mr Balls responded, saying he “did not want to clobber anyone”, but did not divulge how much people living in the highest value properties would be charged, until after the election.

For homeowners in properties worth between £2m-£3m, they will receive an annual bill of £3,000, regardless of their income, Mr Balls said last year.

Mr Balls said for homes over £3m, the tax costs will be kept secret until his first Budget if Labour wins.

He said on BBC Radio 4’s World at One: “I promise you that it won’t be crude. I don’t want to clobber anyone, but I want to make sure that people who are paying too little tax because they are under-taxed in multi-million pound properties, and many of these are foreign owners who don’t pay tax at all, pay their fair share to the NHS.

“We are the only party setting out how we will get what the NHS desperately needs; more money for the doctors and nurses we need to deal with the crisis. We are the only party setting out a fair way to do that.

MPs Discuss Labour's Mansion Tax

MPs Discuss Labour’s Mansion Tax

“We think that when you have properties over £2m, where they are under-taxed compared to most people’s property, it’s fair to ask people with the broadest shoulders to pay some more.

“We are going to do this in a way which will only apply to less than 0.5% of households. It will be done in a fair way. It will be done in a banded way. People above £3m will pay more than £250 a month. It will be progressive, so the higher the bands are, the more you will pay.

“I’ve not set out the details for the higher bands, because that depends upon the detail of distribution of house prices, which is something we need to go through with the Treasury in detail. I will announce for our first Budget the details of our mansion tax.”1

Lord Mandelson said, on the BBC’s Newsnight: “We don’t have an efficient way of taxing property in Britain. I don’t happen to think the mansion tax is the right policy response to that, I think it’s crude.

“I think it’s short-termist, what we need is what I think the Liberal Democrats are proposing, and that is the introduction of further bands that relate to different values of property within the council tax system.

“That’s what I would like to see. It will take longer to introduce, that’s true, but it will be more effective and efficient in the long-term than just sort of clobbering people with a rather sort of crude short-term mansion tax.”1

Labour predicts that the tax would affect less than 0.5% of homes in the country, and those earning less than £42,000 would be able to defer paying the tax until their property is sold.

Mr Miliband revealed that his proposal would raise £1.2 billion annually for the NHS. Labour would use this funding for 20,000 more nurses, 8,000 more GPs, 5,000 more home care workers and 3,000 more midwives.

However, former shadow health minister Diane Abbott says: “The revenue from the mansion tax won’t begin to pay for all those nurses.

“It’s not going to help. It’s not going to help Labour parliamentary candidates in London. I’ve had parliamentary candidates in the outer suburbs say to me the mansion tax is a problem for them. It’s not help in London.”1

Tory MP for Croydon Central, Gavin Barwell, says: “The cat’s out of the bag. Labour’s homes tax is a shambles that won’t begin to raise the money Labour claim, leaving another gaping hole in their spending plans.”1

1 http://www.dailymail.co.uk/news/article-2919140/Chaos-Labour-s-plans-mansion-tax-Party-says-homeowners-wait-Election-pay.html

Taxes that Affect the Buy-to-Let Market

Published On: January 19, 2012 at 3:21 pm

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Tax should be an essential part of the process for landlords, whether they own one or many rental properties.

If an investor jumped into the buy-to-let market in 1996, when it began, they would already be seeing plentiful returns. Back then, the average house price in the UK was £53,394. Now, it is £167,291, an increase of 213.3%.

If this pattern continues, and a landlord receives sufficient income from rents, covering all costs in owning and maintaining the property, buy-to-let can be a rewarding investment.

The setback with any investment is that you will be taxed on your asset. It’s also emerged that most buy-to-let landlord with just one property do not obtain specialist property tax advice. A recent survey questioned investors with more than 11 properties in their portfolio, and 89% confessed to being clueless where tax is concerned.

HM Revenue & Customers (HMRC) is cracking down on landlords who haven’t paid Capital Gains Tax (CGT) on properties that they have sold. Consequences of not doing so can be fines or even criminal prosecution.

Kate Faulkner is the Managing Director of propertychecklists.co.uk, and has found many investors who are ignorant of the requirement to pay income tax. From buy-to-let landlords who have sold without paying CGT, to those signing the ownership of their house to their children without the necessary legal or financial paperwork, these situations can cause significant problems in the future.

Taxes that affect the buy-to-let market

Taxes that affect the buy-to-let market

There are certain taxes that affect the buy-to-let market. These are:

Income Tax

Income tax needs to be paid on any rental income, minus the costs. Costs that do not need to be taxed include mortgage interest, letting agent’s fees, insurance, council tax, and maintenance.

To stay in control of taxes, keep all receipts safe and ensure everything is up to date. Additionally, remember to exclude the deposit received from each tenant when calculating rental income. If more than one person owns the property, income can only be claimed to reflect the ownership of the property. For example, if two people each own 50%, they only declare 50% of the income individually.

Capital Gains Tax

This tax is paid on the net gain of the property’s value, minus costs and reliefs. To calculate how much CGT is to be paid, take the gain figure and deduct buying and selling costs, including Stamp Duty Land Tax, solicitor’s and estate agent’s fees, any capital investment on improvements of the property, such as new windows, and then pay tax on what is left. 18% for the basic-rate tax band and 27% for any gains above this band.

If more than one person owns the property, they can each individually use their capital gains tax-free allowance, currently £10,900 per person. If the property you live in is being sold, you are entitled to Private Residential Relief and Lettings Relief. If it is your only house or main residence, you aren’t liable for CGT.

Inheritance Tax

When passing on your home, Inheritance Tax applies. However, the rules are complex, so professional advice must be sought. Property is one of the least tax-efficient assets as there is little tax relief. The estate of someone who owns more than one house will easily surpass the current Inheritance Tax threshold of £325,000.

If a property is bought with someone else, it will be asked if you want to invest as Tenants in Common or Joint Tenants. Always choose Tenants in Common, as this allows shares to be invested in a trust for beneficiaries. Joint Tenants is normally more suitable to couples that buy their home together that they will only pass on when the other dies.

To ensure your property tax is correct, stick to these tips:

  • Only seek advice from property tax specialists.
  • Be clear on your current income and assets.
  • Understand what you can claim for from an income and CGT perspective.
  • Know your objectives from a tax and legal standpoint.