Recent tax changes UK property investors need to know about

By Andrew Hoban, partner at Allsop and David Hosgood, senior tax manager at PwC 

In the Spring 2021 Budget, the Chancellor announced a wide range of tax changes with a strong emphasis on encouraging capital spending as a route to achieving recovery in the economy. Although changes to the corporation tax rate were announced, there was no increase in the Capital Gains Tax (CGT) rate, however, this may be revisited in the future.

Significant tax changes have been introduced in relation to the UK property market over recent years.  These changes are likely to have impacted the majority of UK property owners, whether this be individuals or corporates, UK residents or non-residents and whether they hold the properties for investment or trading purposes.

Below is an overview of some of the more recent changes that have been announced in relation to the UK property market.

Stamp Duty Land Tax (SDLT)

SDLT applies in relation to acquisitions of property in England and Northern Ireland. Different rates apply depending on the value of the property and whether it is residential or non-residential.

On 8 July 2020, the Chancellor announced an immediate SDLT holiday until April 2021 on the first £500,000 paid for a residential property in England or Northern Ireland.  As part of the latest Budget announcement, the Chancellor extended the SDLT holiday until 30 June 2021. In addition, the nil rate band will not immediately revert to the previous level of £125k from 1 July 2021; instead, the nil rate band will be maintained at £250k until 30 September 2021, after which it will revert to £125k.

The existing 3% additional SDLT for buyers of second homes, corporate buyers and other property investors will also remain.

Furthermore, an additional 2% surcharge for non-UK residents has been applied to residential property acquisitions since 1 April 2021. It affects both non-resident individuals and non-natural persons (e.g. companies, trusts, partnerships), in addition to the existing SDLT rates of up to 15%.  In other words, the top rate for non-residents could be 17% (Scotland and Wales have their own regimes).

New rules for residential property disposals

From 6 April 2020, taxable capital gains made by UK-resident individuals, trustees or personal representatives of a deceased person on the disposal of UK residential property must be reported to HMRC within 30 days of the completion date. For these purposes, a disposal will include gifts in addition to sales of such property. Payment of the estimated CGT arising on the disposal(s) must be made within the same 30-day deadline.

This is an extension of the reporting rules that have been in place for disposals by non-UK residents since 6 April 2015, who have had to report and pay any tax on disposals of UK residential property within 30 days of disposal.

For disposals by UK residents, there are various exceptions to the new reporting and payment rules, for example in cases where no CGT arises on the disposal.

Non-resident immovable property gains

Prior to 6 April 2019, non-UK residents were not subject to CGT in disposals of UK immovable property except in relation to certain disposals of residential property or where a trade was being carried on through a permanent establishment in the UK. However, the scope of the UK tax net dramatically widened from 6 April 2019: non-UK residents are now subject to UK tax on gains on all direct and certain indirect disposals of interests in UK immovable property, subject to certain exceptions.  The new rules apply to all disposals of UK real property by non-residents that have not previously been within the scope of UK tax e.g. UK commercial property.

Corporation tax changes

As part of the Budget, it was also announced that the rate of corporation tax will increase from April 2023 to 25% on profits over £250,000. The rate for small profits under £50,000 will remain at 19%, and there will be relief for businesses with profits under £250,000 so that they pay less than the main rate.

This rate change will impact UK resident companies and also non-UK resident company investors in UK property, given that their UK taxation of property rental business income transitioned from UK income tax to UK corporation tax from 6 April 2020. This transition, while not leading to a headline tax rate increase in the short term, has still meant many non-resident landlords are paying higher taxes because of the greater restrictions on interest deductibility.

Business rates holiday

The Chancellor has extended the existing rates relief available to tenants. The reliefs are available for eligible retail, leisure and hospitality businesses until July 2021 and will continue to discount business rates bills in these sectors by up to two thirds until March 2022.

The extension of relief is tailored and primarily targeted at smaller and medium-sized businesses who have been forced to close during the coronavirus outbreak.

Incentives to encourage investment in Freeport tax sites 

Tax reliefs have also been announced to encourage investment in eight Freeport tax sites in East Midlands Airport, Felixstowe & Harwich, Humber, Liverpool City Region, Plymouth & South Devon, Solent, Thames, and Teesside. This measure will enable tax sites in Freeport locations to be designated and recognised in law as geographical areas where businesses can benefit from Freeport-specific tax reliefs, such as:

• an enhanced 10% rate of Structures and Buildings Allowance for constructing or renovating non-residential structures and buildings
• an enhanced capital allowance of 100% for companies investing in relevant plant and machinery
• relief from SDLT on the purchase of land or property within Freeport tax sites in England
• Business Rates relief in Freeport tax sites in England

About our authors

David Hosgood is a Senior Tax Manager within PwC’s private business private client tax team in London.

If you would like to get in touch with David please contact him david.hosgood@pwc.com or +44 (0)7711 562159

Andrew Hoban is a Partner in Allsop’s Commercial Valuation team focusing on Central London, Mixed Use and Development properties

If you would like to get in touch with Andrew please contact him andrew.hoban@allsop.co.uk or +44 (0)7534 963547