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January 2020 Property Briefing

IN FOCUS: Property-related changes from April 2020


In this month’s briefing, Suzanne O’Hara details the SDLT proposals contained in the Conservative Party’s manifesto, along with the key property tax-related provisions due to come into effect from 6 April 2020.

What a year for UK politics! With all the focus on Brexit, it was not surprising that 2019 was the first year without a Budget since 1768. The Conservative Party has announced the date of the next Budget as 11 March 2020; this article looks at the proposals contained in the Conservative manifesto and the already-confirmed changes that will become active from 6 April 2020.

In terms of SDLT, the Conservative manifesto includes a pledge to introduce a 3% SDLT surcharge on non-UK residents purchasing UK residential property.

If implemented, non-resident buyers would face an SDLT charge of up to 18% when purchasing UK residential property. The rate for commercial property is set to remain unchanged (the top rate applying to commercial property being 5%).

UK resident buyers will also remain unaffected. However, it has been widely speculated that this could be a prelude to significant SDLT cuts for UK residents, as proposed by the Prime Minister last year.

We can only wait to see what lies in store for property taxes in the Budget, but the following changes are intended to be implemented from 6 April 2020:

 

Current position

  • Presently, for the purposes of Principal Private Residence relief (PPR), the last 18 months of ownership are exempt from capital gains tax, regardless of the use of the property during that period. From April 2020, this will be reduced to 9 months. This reduction means that individuals buying a new home before selling their old one will need to ensure a sale of the old property takes place within nine months or risk a potential CGT charge.
  • Letting relief applies where an individual sells a property that has been their main home and which has also been let out for a time. Currently, in such a situation, letting relief can exempt up to £40,000 of any gain on disposal. From 6 April 2020, it will only apply in situations where the owner of the property is in shared occupancy with the tenant. As a result, up to £11,200 of CGT would be lost unless the individual selling the property lived in the home at the time it was let out.
  • Before April 2017, mortgage interest was often a fully deductible expense against a landlord’s rental income for income tax purposes. From 6 April 2017, a phased restriction was introduced and will complete on 5 April 2020. From 6 April 2020, all finance costs incurred by UK residents that let residential property will be disallowed as an expense of their property business. Instead, tax relief on the disallowed finance charges will be restricted to a basic rate (20%) tax credit. Therefore, higher and additional rate taxpayers will be taxed on the rental income at 40% and 45% respectively, but will only be able to claim relief for mortgage interest at the basic rate of 20%. The restriction will not affect the tax liabilities of landlords who are basic rate taxpayers.
  • As discussed in our December Property Briefing, UK residents that sell UK residential property after 5 April 2020 will need to prepare a formal CGT computation where a chargeable gain arises, and return this to HMRC within 30 days of the relevant sale. They will also need to pay any tax due in the same period.
Our team of specialist tax advisers are at hand to assist you with all property tax-related matters.