Property prices have grown significantly for decades and therefore not only has property tax become a hot topic for politicians but also many properties have built up capital gains which inhibits a desire to sell.

For most individuals and businesses property decisions are some the biggest decisions faced and the tax landscape a key component of that process.

As the Chancellor of Exchequer dreams up ways to secure more tax revenues property tax is high on the agenda and below represents the list of concerns.

Area

Tax

Issue Summary

Disposal of Own Home

Capital Gains Tax (“CGT”)

Tax rates are higher than other gains

Reliefs are available based on the uses during one’s ownership period

Income from Own Home

Income Tax

Rent a room relief potential available

Taxable profits at marginal rates

Commercial use may jeopardise CGT reliefs and IHT reliefs

Buy to Let Individuals

Income Tax

Rental profits taxable but potential to utilised spouses tax brackets where appropriate

Interest tax relief restriction on higher (and additional) rate taxpayers

Buy to Let and Developer Individuals/Partners

Stamp Duty

Additional 3% stamp duty on purchase of an additional property

Reliefs and refunds available in certain circumstances

Buy to Let Companies

Company Tax

Rental profits taxable

Capital tax tax on disposals but inflation adjustment allowed to capitalised costs

Buy to Let / Developer Companies

Annual Tax on Enveloped Dwellings (“ATED”)

Tax based on value banding to catch non-residents but wide scope of reliefs available but these reliefs have to be claimed at the start of the tax year in April

Buy to Let / Developer Corporates

Stamp Duty

Default 15% rate and price >£500,000 if not used commercially. But commercial users will obtain standard company buy to let rates

Developer Corporates

Corporation tax

Disposals are treated as disposal of stock and tax is based on taxable profits. No inflation allowance

Property Investments

Inheritance Tax (“IHT”)

Generally considered passive investment assets and so not relief from IHT

Development Assets

Inheritance Tax (“IHT”)

Development businesses can qualify for reliefs from IHT

Residential Property Income

Value added tax (“VAT”)

Exempt from VAT so VAT is not charged nor reclaimed

Potential exists in limited circumstances to recover some VAT on costs

Commercial Property

Value added tax (“VAT”)

Usually exempt so VAT is not charged nor reclaimed

Able to opt to tax to enable VAT to be charged and reclaimed. This is usually irrevocable and affects any future disposal

Property is a complex and highly valuable asset class where advice is highly recommended.

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