buy-to-let tax stamp duty

What property tax changes are predicted for the upcoming year?

As COVID-19 has left a significant toll on public finances, many predict a range of property tax changes will be announced in 2021. How could this impact buy-to-let landlords and investors?

It’s no surprise that the COVID-19 pandemic is putting a toll on public finances. The government’s borrowing has hit a peacetime high. Spending cuts or tax rises may have to be made moving forward.

Many professionals in the housing industry feel there are a range of property tax changes that will be announced next year. Some changes will likely be announced in the Spring Budget, which is expected to take place in the latter part of the first quarter of 2021.

There has been talk of an overhaul on capital gains tax and a one-off tax on assets, including property. And many are wondering what will happen once the temporary stamp duty holiday comes to an end.

Capital gains tax rises

In July, Chancellor Rishi Sunak asked the Office for Tax Simplification (OTS) to look at whether the capital gains tax is fit for purpose and if it could be simplified. In a follow-up report, the OTS called for an increase to capital gains tax in line with income tax rates and a reduction in the annual allowance.

Currently, capital gains tax rates are lower than income tax. The OTS recommends the tax rate on capital gains for buy-to-let properties to rise to 20% for basic rate taxpayers and 40% for high rate tax payers. Additionally, the current annual allowance exempt from capital gains tax is £12,300. The OTS suggests this allowance should be lowered to £2,000.

If a higher capital gains tax regime is brought forward, this will likely impact buy-to-let landlords and second home-owners. However, it could also lead to a boom of sales before the changes come into effect.

In 2020, a few new capital gains tax rules came into play on 6 April. This involved tighter payment deadlines, private residence relief changes and lettings relief changes. When selling a residential property that is not your main home, UK residents need to advise HMRC of the capital gains tax due and pay it within 30 days of completing.

One-off wealth tax proposed

The Wealth Tax Commission has proposed a one-off tax on individuals with assets worth over £500,000, or £1m for a married couple, instead of increasing income tax or VAT. The commission feels this should include main residences and pension pots.

Taxing these households 1% on assets will raise an estimated £260bn over five years, according to the Wealth Tax Commission. However, there are some concerns that this could target households who are asset rich and not cash rich. And some feel main residents and pension pots should be excluded from any wealth tax.

Stamp duty changes

The temporary stamp duty holiday is scheduled to come to an end on 31st of March 2021. The tax holiday has significantly boosted the property market and has helped it recover from COVID-19. There has even been a record number of buying and selling for this time of year. This has led to delays with property transactions as conveyancers and lenders are under significant pressure.

Many in the property industry are lobbying the government for a six-month extension to the stamp duty holiday. Housing Minister Christopher Pincher previously stated that the government does not plan to extend the tax holiday. However, a few MPs have responded positively to letters sent to them asking for an extension.

Changes to stamp duty for foreign buyers will be coming into effect from 1st of April 2021. All non-UK resident investors purchasing a residential property will need to pay an additional 2% stamp duty. Some view the surcharge as a deterrent to foreign investors, but many won’t be put off with the pound remaining at a historic low.

How will buy-to-let landlords adapt to changes?

If property tax changes come into play in 2021, buy-to-let landlords and investors will change the way they do business. In recent years, many have successfully adapted to a smattering of tax changes, including major changes to Section 24.

The industry will likely continue to find ways to adapt to property tax changes that come forward. For example, if capital gains taxes are changed drastically, buy-to-let landlords will hang on to property investments for longer.

Many UK landlords and investors will be eagerly awaiting any announcements to find out what property-related taxes will impact them.

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