Wednesday, June 20, 2012
Specialist property accountant Stephen Fay ACA provides an
overview of the changes in the recent Budget that affect landlords
and property investors. Stephen is part of Fylde Accountants who
have recently joined the NLA's Recognised Supplier Scheme.
Landlords are affected by a myriad of taxes - meaning that each
Budget brings new challenges - some of which are specific to
landlords, and some are general changes that affect everyone.
The following highlights the key points:
The key tax affecting landlords as it is usually payable every
The Personal Allowance on which no tax is charged is to increase
to £8105 (2012-13) and then to £9205 (2013-14) - note: this also
applies to non-resident landlords. For landlords with total income
under the Basic Rate limit of £42,475, this means a real future
income tax reduction. The Chancellor mentioned £10,000 as the
target Personal Allowance for the medium term.
The 50% tax rate is reduced to 45% as of 2013 - affecting some
lucky landlords! For those with companies, ensure that bonuses
& dividends above this level are paid out after April 2013 if
The Higher Rate tax threshold reduces from £35,000 to £34,370 -
so Higher Rate taxpayers will not benefit from the Personal
Allowance increase. Higher Personal Allowance for those aged >65
are to be phased out to align (eventually) with the 'regular'
Personal Allowance - AKA the so-called 'granny tax'. This is part
of the euphemistically called 'tax simplification' process!
Tax Reliefs - New Rules
Income tax 'reliefs' are to be restricted to the greater of
£50,000 or 25% of income as of April 2013. This has been a concern
for some landlords as it is currently unclear exactly which reliefs
this relates to - for example, does this include sideways loss
relief claims for capital allowances? It certainly affects Gift Aid
payments, but it's unlikely to affect finance interest relief, or
property rental losses. Those with capital allowances to claim (you
do know if you're entitled to claim capital allowances on your
property - don't you?), and loss-making property traders, should
ensure their accountant keeps them updated.
Capital Gains Tax
No change to the Personal Allowance of £10,600, or to the rate
of either 18% or 28%. However, property disposals by non-resident
& 'non-natural' (companies mostly) entities will be subject to
CGT from April 2013 - anyone with an offshore property investment
company should see their accountant! Capital Allowances (CAs)
CAs are the tax equivalent of depreciation. The 'first year' CA
(called the 'Annual Investment Allowance') reduced in April 2012
from £100k to £25k per annum, with remaining allowances only
dripping through in future years at 18% per year, rather than the
previous 20%. This means tax relief is delayed, though still
received eventually. Also, new legislation will ensure that CAs are
not claimed more than once during the life of a property. Property
buyer and seller will need to agree a value for CAs within 2 years
of the transaction, and the seller will need to have accounted for
these pre-sale. Missing out on valuable CAs can be a painful
experience - so make sure your solicitor is on the ball when
completing the conveyancing!
Stamp duty land tax (SDLT)
There is a new rate of 7% now payable on residential properties
worth >£2m - I wonder what the yields are like on £2m
There is also a better definition of 'residential' and a new 15%
SDLT rate for properties worth >£2m acquired by 'non-natural
persons' (mostly companies) - both UK and foreign. Also, so-called
SDLT 'sub-sale relief' - using an option to buy a property - has
been abolished. This was a 'loophole' that HMRC 'considered'
illegal (i.e. only their opinion) - the new legislation literally
makes these schemes illegal now.