Budget Announcement March 2016 Property Tribes


Simon Misiewicz

21st April 2016

Tax bands:
– Personal Allowance will increase to £11,500, and the higher rate threshold will rise to £45,000 in April 2017

Mortgage Interest Relief:
– Mortgage interest relief will be limited to 20% tax relief. In basic terms for high rate tax payers this means that any mortgage interest you have will be halved as a cost. If your mortgage interest is £1,000 then you will only be able to offset £500 as a high rate tax payer, as an example without complicating it with formulas.

SDLT – BTLs (residential)
– 3% surcharge will apply if you or your limited company is buying a second property in your name or limited company for any property over £40K. The 3% applies to the total value of the property. If the property is £100,000 then you will pay the £3,000 SDLT
– The 15 property mitigation suggestion was ignored. You will therefore pay the surcharge irrespective of how many properties you purchase.

Solution: SDLT multiple dwellings relief

More analysis: 3% SDLT premium

Solution: to the removal of the 10% wear & tear allowance to reduce SDLT & tax

SDLT – Commercial
– SDLT will be tiered like resi property investments as follows:
– 0% SDLT for £0 – £150K
– 2% SDLT for £150K – £250K
– 5% SDLT for £250K+
– Previously SDLT % was charged on the full value but is now phased on the above % rates
– for example, if you buy a property for £270,000, you would have paid over £8,000 in stamp duty. From 17 March 2016, the SDLT will be £3,000.

Wear & tear allowance has been removed:
– If you have a furnished property and had net rent of £2,000 per month then you were allowed to have a 10% wear & tear allowance (£200) set of against your income
– You will be allowed to offset the replacement costs of furniture in the future, so arrange to buy the furniture and electrical from the seller and reduce your tax and SDLT.

See here for a solution to the removal of the 10% wear & tear allowance

CGT reduction (not for resi property investors though)
– Basic rate tax payers will pay just 10% instead of 18%
– High rate tax payers will pay 18% instead of 28%
– The above does not relate to people with residential property investments so the old rates still apply

Corporation tax
– Corporation tax will eventually drop to 17%, which is significantly lower than basic rate tax bracket of 20%.

Entrepreneurs relief

– Entrepreneurs’ relief will be extended to long term investors in unlisted companies. This will provide a 10% rate of CGT for gains on newly issued shares in unlisted companies purchased on or after 17 March 2016, provided they are held for a minimum of three years from 6 April 2016, and subject to a separate lifetime limit of £10 million of gains.

Anyone investing in commercial properties in a limited company had a good day. High rate tax payers that invest in resi investments in their own name did not have such a great day.

See here for more details of the 10% entrepreneurs relief

Offshore property developers

The government believes it is unfair to allow property developers to use offshore structures to avoid UK tax on their trading profits from developing property in the UK. By enforcing the international rules on the taxation of trading profits derived from property, the government will level the playing field between UK and offshore developers. The government will introduce legislation in Finance Bill 2016 to ensure offshore structures cannot be used to avoid UK tax on profits that are generated from developing UK property.

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