How The Budget 2014 Will Affect Property Investors

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Among the many changes announced in the Budget this week were several that will affect the UK property sector. Here’s our run down on what the taxation changes mean for investors and landlords.

Firstly, the government is clamping down on property investors who buy homes through a company. In 2012 a 15% Stamp Duty (SDLT) was introduced to try and tackle ‘tax avoidance’ by those who bought residential property through their firm. Now, the government is extending the scope of properties eligible to be taxed, from residential properties worth over £2million to include those worth more than £500K.

Finance Minister George Osbourne said: “We are expanding the new tax we introduced to stop people avoiding stamp duty by owning homes through a company. From midnight tonight [Wednesday, 19th March], anyone purchasing residential property worth over half a million pounds through a corporate envelope will be required to pay 15% stamp duty.”

Further to this increase, an Annual Tax on Enveloped Dwellings (ATED) will be applied every year the company owns the property. This will be gradually rolled out over the next 2 years. For properties between £1m and £2m the annual levy will be £7,000, and for properties between £500,000 and £1m the levy will be £3,500. Additionally, any companies falling within this bracket will be subject to a huge 28% capital gains tax when they sell the property.

The Government has said that it will consult to ensure that these new tax burdens are ‘simplified’ for genuine property rental and development companies, but how this will work is yet to be discussed.

The second change to affect property investors, is how Stamp Duty will be applied to property authorised investment funds (‘PAIFs’) and co-ownership authorised contractual schemes. This is still at the consultation stage, but Phil Nicklin, property tax advisor at Deloitte, says that ultimately, a seeding relief for PAIFs would help form new property funds; “This would be attractive to institutions that need to fund payments to policy holders, as well as to investors who wish to co-invest in institution-grade assets.” He says.

Finally, as previously announced, capital gains tax will be applied to future gains made by non-residents selling UK residential property from April 2015.

Until the consultation documents are released, it’s unclear how much these new measures will affect our industry, but we’ll be sure to give you our opinion when they are released.