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Property purchasing could get costlier……………

Written by admin on . Posted in Landlord, Property, SDLT, Stamp Duty. No Comments on Property purchasing could get costlier……………

Although a late reprieve cannot be completely ruled out, the stamp duty cost of purchasing a property in England and Northern Ireland is set to go up from 1 April 2025.

Stamp duty costs have risen now that the temporary £250,000 nil rate threshold has reverted back to £125,000, the pre-23 September 2022 level. First-time buyer discounts will also fall to previous rates.

Landlords

The reduction of the stamp duty threshold from £250,000 to £125,000 will mean an additional cost of £2,500 for anyone purchasing a property costing £250,000 or more as the extra £125,000 of the purchase price is brought into the 2% tax charge.

For landlords, this will come on top of the 2% surcharge increase introduced for purchases from 31 October 2024 onwards. They will have seen their stamp duty cost on, for example, a £350,000 property purchase go up first from £15,500 (pre-31 October 2024) to £22,500 (currently), then to £25,000 (from 1 April 2025) – a more than 60% increase.

First-time buyers

The temporary discounts currently in place mean that first-time buyers in England and Northern Ireland do not pay stamp duty on property purchases costing up to £425,000. So:

  • For purchases costing between £425,000 and £625,000, duty at the rate of 5% is paid only on the excess over £425,000; and
  • No relief is available if the purchase price exceeds £625,000.

From 1 April 2025, the nil rate threshold will be reduced to £300,000, with the higher limit cut to £500,000. The rate will be at 5% where a property costs between £300,000 and £500,000.

Those purchasing property at prices just over £500,000 from 1 April 2025 will need to negotiate for a discount. For example, a £1,000 reduction on a purchase originally priced at £501,000 will save £5,050 in stamp duty.

The online calculator for the amount of stamp duty payable on a property purchase in England and Northern Ireland can be found here.

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The end of multiple dwellings relief

Written by admin on . Posted in SDLT, Stamp Duty. No Comments on The end of multiple dwellings relief

From 1 June 2024, the abolition of multiple dwellings relief under stamp duty land tax (SDLT) will stop disputes about what qualifies as a separate dwelling (e.g. a granny annex). However, the scrapped tax will impact English and Northern Irish buyers who purchase two or more properties in a single, or linked, transaction.

At the moment, multiple dwellings relief reduces the overall SDLT rate when buying two or more properties in a single, or linked, transaction. The buyer pays SDLT based on the average price of each dwelling and benefits from two or more lower SDLT bands.

Relief abolished

The government has abolished the relief due to questionable claims, particularly relating to granny annexes. Unfortunately, genuine claims will now lose their relief, for example, buyers of a country home with a cottage in the grounds, or a town house with a self-contained basement flat. From 1 June, the amount of SDLT payable on a property costing £750,000 containing a qualifying annexe will double from £12,500 to £25,000.

Many buyers have been contacted by companies offering to help them claim back SDLT for a commission, but these refunds are often based on questionable entitlement to multiple dwellings relief.

While the removal of multiple dwellings relief will not affect the majority of properties, you should be aware that:

  • Relief is still available for a contract that was entered into on or before 6 March 2024, regardless of when completion takes place.
  • Otherwise, relief will only be available if a purchase is completed (or substantially performed) before 1 June 2024.

Six or more properties

Where six or more properties are purchased in the same transaction, non-residential SDLT rates can be applied. This means a maximum rate of 5% compared to a top residential rate of 12%; or 15% for a buy-to-let purchase. In the absence of multiple dwellings relief in future, buyers using this option will have to take care to structure such transactions to ensure all properties come under a single contract.

You can find out more about HMRC’s guide to SDLT on the government website.

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Tax implications for the bank of mum and dad

Written by admin on . Posted in Capital Gains Tax, Property, SDLT, Stamp Duty. No Comments on Tax implications for the bank of mum and dad

With property prices expected to fall during 2023, parents may be thinking about getting their children onto the property ladder. However, although help with a deposit does not raise that many tax issues, joint ownership can have expensive tax consequences.

Nearly half of first-time property buyers aged under 35 have received help from the bank of mum and dad. However the following implications should be considered alongside generous intentions.

Help with a deposit

  • Outright gift: This will be treated as a gift for inheritance tax (IHT) purposes. There is no immediate tax cost, but it could mean more IHT is payable if the parent subsequently dies within seven years.
  • Loan: An interest-free loan arrangement avoids any IHT implications, but it could impact on mortgage affordability calculations.


Stamp duty

Joint ownership is likely to mean upfront stamp duty consequences.

  • In England and Northern Ireland, first-time buyers can benefit from a nil-rate threshold of £425,000, saving a potential £8,750 compared to a normal purchaser. However, with joint ownership, all purchasers need to be first-time buyers to qualify for relief; parents are unlikely to qualify.
  • There is a similar, although much lower, relief for Scottish first-time buyers.
  • Furthermore, the inclusion of parents will probably mean that the stamp duty surcharge on second homes is payable. For property in England and Northern Ireland, this is 3%, with higher surcharges for Scottish and Welsh property.

The surcharge can mean an extra cost of £9,480 for a property purchase in England at the latest published average price (October 2022) of £316,000.

Capital gains tax (CGT)

CGT exemption on property disposal only applies if a property has been the seller’s main residence, and this again is unlikely to be the case for a joint owning parent. The tax charge will probably be mainly, or wholly, at 28%. The future reduction of the CGT annual exemption to just £3,000 will not help.

A useful guide on helping a child buy their first home can be found here.

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Finding the right mix in mixed use properties

Written by admin on . Posted in SDLT, Stamp Duty, Tax. No Comments on Finding the right mix in mixed use properties

A recent tribunal found in HMRC’s favour when a residential property was questionably deemed mixed use.

On the purchase of a mixed use property, stamp duty land tax (SDLT) is paid at non-residential rates rather than residential rates. This is the case regardless of the relative size of the residential and non-residential areas of the property.

Currently, it is beneficial to pay residential rates on a property purchase in England or Northern Ireland costing up to £965,000. However, mixed use treatment is advantageous on more expensive properties, or if the 3% surcharge on additional residential properties would otherwise be payable.

What is mixed use?

It can be quite complicated deciding on the appropriate SDLT treatment when a building is used partly as a dwelling and partly for other purposes, but HMRC does make a clear distinction.

A building where certain rooms, which could otherwise be used as part of the residential area, are used for work purposes – is not mixed use. (For example, where someone has an office at home).

A building that is divided into separate residential and non-residential areas, with the non-residential part adapted for use as commercial or business premises – can be mixed use. (For example, where part of a building is converted into a surgery).

The actual use is irrelevant. The key factor is the degree of conversion required and the degree of separation from the residential area.

A cautionary tale

A recent First-Tier Tribunal case on the meaning of ‘mixed use’ went in HMRC’s favour.

A couple had purchased a property for £2.9 million. They wanted to classify it as mixed use on the basis that the land encompassed a public footpath, arguing that the footpath was used for a separate commercial purpose – namely access to a neighbouring farm. The couple were responsible for ensuring ditches and drains on their side of the path remained clear, but the house itself was entirely residential.

The tribunal held that the shared path was like any other public right of way, and simply formed part of the grounds of the property. It was not a separate non-residential area.

This case involved a tax refund company, and HMRC has said the decision should serve as a warning to those considering getting involved with such agents.

HMRC has consulted on changes to the way SDLT applies to mixed use property, for the future, but no proposals have yet been forthcoming. In the meantime, HMRC’s guidance on how the tax can be found here.

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Getting in touch: HMRC’s new email facility

Written by admin on . Posted in PAYE, Stamp Duty, Tax, VAT, Wills & Probate. No Comments on Getting in touch: HMRC’s new email facility

Although there is no general facility to contact HMRC by email, it is slowly moving into the 21st century by providing the option to receive an email response. But of course, this comes with a few conditions.

Dealing with HMRC by post can be a slow process. With resources having been spread more thinly than ever due to the Covid-19 pandemic and Brexit, HMRC has only recently been working its way through the built-up backlog of post.

Scam risks

Scammers can use fake HMRC emails as a way of obtaining personal information, although, with improved scam email detection, they have now largely switched to text messaging. Nevertheless, HMRC points out the risks associated with using email. Their guidance raises various concerns:

  • Emails sent may be intercepted and altered.
  • Attachments could contain a virus or malicious code.

To reduce the risk, HMRC will desensitise information, by, for example, only quoting part of a unique reference number.

Confirmation

Anyone who would like to be contacted by email has to confirm to HMRC in writing by post or email that:

  • They understand and accept the risks of using email;
  • They consent to financial information being sent by email;
  • Attachments can be used; and
  • Junk mail filters are not set to reject and/or automatically delete HMRC emails.

HMRC should also be sent the names and email addresses of all people to be contacted by email, such as business owners, staff and the business’s tax agent.

Confirmation will be held on file by HMRC and will apply to future email correspondence, with the agreement reviewed at regular intervals to make sure there are no changes. The use of email can be cancelled at any time by simply letting HMRC know.

HMRC publish a list of recent emails it has sent out to help people determine if an email is genuine. This list can be found here.

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Freeports up and running

Written by admin on . Posted in Capital Gains Tax, National Insurance Contributions, Stamp Duty, Tax. No Comments on Freeports up and running

The first eight Freeport designated tax sites have now opened in Teesside, Humber and Thames. Freeports and their tax sites benefit from various incentives and tax breaks, but it remains uncertain whether they will provide the promised boost to the UK economy.

The question to what extent economic activity will simply be moved from one place to another just so businesses can benefit from the incentives and tax breaks offered by Freeports and their tax sites. These designated tax sites are relatively small areas within each Freeport. There are currently two tax sites in the Humber Freeport, and three each in Teesside and Thames.

Freeport advantages

Outside of the tax sites, the main advantage of operating within a Freeport is being able to bring in imports with simplified customs documentation and delayed payment of tariffs; particularly relevant if goods are manufactured using the imports, and then exported.

The government has recently published guidance regarding when goods can be moved into, or stored in, a Freeport.

Tax incentives

Some of the tax breaks are not as beneficial as they might first appear. The tax breaks include:

  • National Insurance Contributions (NICs): Relief will be available from April 2022 for new hires working at least 60% of the time at a single tax site. There is a 0% rate of employer NICs, but only on annual earnings up to £25,000.
  • Capital allowances: For new plant and machinery used primarily in a tax site, a 100% deduction is given. This is only worthwhile if either the 130% super-deduction or the 100% annual investment allowance is not available.
  • Structures and buildings allowance: Qualifying buildings situated within a tax site can be written off over ten years rather the usual 33⅓-year period. For example, the annual write-down for a warehouse that costs £1,200,000 will be £120,000, compared to £36,000 if the warehouse was situated elsewhere.
  • Stamp duty land tax (SDLT): Full relief is given when buying land and buildings situated within a tax site. The land and buildings must be used for a qualifying commercial purpose, with residential property excluded. Continuing with the above example, if the warehouse and land cost £1,600,000, then SDLT of £69,500 will be saved.

Maps of the current Freeport locations and their designated tax sites can be found here.

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Wealth Divide Increase Through Inheritance

Written by admin on . Posted in Inheritance Tax, Property, Stamp Duty, Tax, Wealth. No Comments on Wealth Divide Increase Through Inheritance

Research by the Institute for Fiscal Studies provides a stark warning of how important inheritances are going to be for younger generations in terms of both lifetime income and wealth.

Wealth passed down from one generation to the next is fast becoming the most important determinant of how well off a person will become, with those born in the 1980s projected to inherit almost twice as much as those born in the 1960s. The average inheritance for those born in the 1980s will be worth 16% of their lifetime (non-inheritance) income. One in ten can expect to receive more than £500,000, and it will come as no surprise that graduates generally have wealthier parents.

Security comes from inheriting property

With a potential £1 million exemption from IHT, your inheritance may well be tax-free if you inherit the family home. Depending on your circumstances, you may then be able to live mortgage-free or enjoy rental income.

Be warned, however, that the inequalities created by inheritances could see a wealth tax imposed at some point.

Struggle for those without family funds

Without parental help, it is becoming increasingly difficult to get a first step on the property ladder. The temporary stamp duty cut should have helped, but any saving has been wiped out by a surge in property prices. Despite this, there is better news:

  • A new government guarantee scheme has been launched, alongside the return of 95% mortgages. Mortgage rates are of course lower for those who can find a 10% deposit.
  • The latest version of the help to buy equity loan scheme means you can borrow up to 20% (40% in London) towards the cost of a newly built home, so a smaller mortgage is then required.
  • First-time buyers will again have a stamp duty advantage later in 2021 once the temporary reliefs come to an end.

Guidance on help to buy, including the equity loan scheme, is available on the government website.

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