While it’s not uncommon for April to mark the need for business owners to contact their solicitors, accountants and advisors on how these new government changes will affect their current and future business, tax and investment decisions, with major changes coming into play in 2016, this year seems to suggest more of these meetings will take place than usual.
This year, the government has announced major changes to the property tax landscape that will affect both commercial and residential property owners and wannabe buy-to-let investors.
Here we take a look at the key property tax changes coming into action in 2016 and how they will affect you...
Increasing Stamp Duty Land Tax (SDLT)
Stamp Duty Land Tax, otherwise known as SLDT, is not a new concept. When people sit down with their mortgage advisor at the bank and discuss buying a new home, they are told they will need to pay stamp duty. From 2016, if you’re interested in purchasing an interest in land, then the amount you pay in SDLT is set to increase.
This rise is the result of a new SDLT banding system that the government has introduced to replace the single rate which was calculated based on the transaction total as a whole. Now, prospective homeowners will pay tax on the percentage of the total transaction value of the property depending on which specific band it falls into.
Although the new system has been around since 4th December 2014 for residential properties, 17th March 2016 sparked the introduction of the SDLT banding tax for non-residential and mixed-use properties, having huge implications for people purchasing business premises or investment properties.
In the run-up to the introduction of SDLT on commercial properties and in the months prior to the new tax year, the property market saw a spike in property buying, especially in the buy-to-let arena as investors put down deposits and secured new mortgages on properties intended for commercial purposes. Unsurprisingly, therefore, in March 2016 UK housing prices had risen by 0.8% month-on-month to a new record high, with the average house price sitting at £200,000 for the first time in history.
Also it has been announced that as of 1st April 2016, an extra 3% SDLT will be charged to residential properties bought as investment properties i.e. second homes or buy-to-let properties.
Reduced Interest Rate Relief
In last year’s Summer Budget, the UK government stated that with the new tax year would come restrictions on the amount of income tax relief that landlords would be able to receive. Whereas previously, landlords would be able to claim tax relief for the financial costs incurred by their commercial properties, the government has now restricted the amount of tax relief landlords are able to receive and it will now be limited to a basic reduction.
From 6 April 2017, only 75% (maximum) of the financial costs incurred by a landlord of a commercial property will be available for income tax relief and therefore deducted from the property income. This amount will decrease to 75% in 2017-2018, 50% in 2018-2019 and then 25% in 2019-2020. In the tax year 2020-2021, any financial costs will be given as a basic tax rate reduction.
If you're a business looking for guidance when it comes to property tax, you may need to contact our commercial property solicitors for help in understanding the changes. If you have any additional concerns, or would like to know how the property tax landscape in 2016 and beyond will affect you, Guillaumes are specialist conveyancing solcitors in Surrey who are happy to guide you through the changes in the law. Contact us today for more information.