What are the Recent Property Tax Changes

While the country went into its second and third lockdowns during 2020 and 2021, the property market flourished. And it's only now beginning to slow down.

Property in coastal resorts and countryside idylls saw huge valuation increases. The result was most locations benefitted from a double-digit annual rise in property prices. According to property portal Zoopla, around £473bn worth of bricks and mortar changed hands in 2021. Naturally, HMRC is being particularly proactive in ensuring it gets its share when it comes to property tax.

The cuts to landlord relief, where it was possible to claim relief on mortgage interest, have now been completely phased out. This cut was achieved gradually over a four-year period to 2020. Now all landlords who pay self-assessment can claim it as an across-the-board tax credit based on 20 per cent of mortgage income payments.

And there is a raft of other property tax changes – both actual and proposed - being introduced for the first time this year.

Changes to Capital Gains Tax (CGT)

The time in which CGT is to be paid following the sale of an applicable property has been doubled. Those liable have 60 days instead of 30 to pay the tax. It's believed the time has been extended to allow 'more accurate' returns to HMRC. In other words, the tax office will penalise those whose residential property tax return contains errors.

Holiday Let Owners

The temporarily reduced VAT rate for holiday lets has ended (31 March 2022). Any holiday accommodation introduced after this date must be charged at 20 per cent.

Residential property developer tax

An additional four per cent is to be charged on profits from residential-property development activities that exceed £25m in any tax year. This new tax was introduced in April this year.

Commercial to residential development

Conversion of a non-residential building into dwellings or altering the number of dwellings within a building (i.e., changing an HMO into one house) will be subject to five per cent VAT. Developers will also be charged VAT for renovating a residential property which has been empty for more than two years (although not if a planning formality prevents disposing of a dwelling).

It's not the architect or surveyor fees that are subject to the five per cent VAT, but the actual physical materials and includes the building itself, i.e., the roof, walls, stairs, windows, floors, doors, plumbing and wiring of the property. But that's not all. The five per cent will also apply to providing the water, heat, power, drainage and installation of a fitted kitchen, bathroom suite, light fittings and central heating. The VAT property tax changes apply regardless of whether the property owner or construction company has bought the items.

Once the building is complete and sold, it's possible to register for VAT and claim back most of the costs. Choose to rent it out, though, and you lose out on any reclaimed VAT.

One future change developers and renovators should consider is stamp duty for multiple dwellings. This includes a shop with a residential flat above. In the past, the flat would be subject to lower commercial stamp duty rates. HMRC plans to change this so that the part above the stairs will incur the higher residential property tax for stamp duty.

Get in touch

With a variety of recent changes in property tax, it can be a little overwhelming. If you need some clarity on your obligations, Keith Graham has a team of property specialists ready to advise you on any changes in property tax accounting. If you are a landlord, developer or home renovator keen to find out more, contact us at 01252 312561 or email info@keith-graham.co.uk.