Best laid plans

With the increased taxation on high end property sales and reduced tax relief for landlords in recent years, there are some important costs to plan for when it comes to buying, owning and selling residential property, as Calvin Healy explains.

Stamp Duty Land Tax

Stamp Duty Land Tax (SDLT) is paid by the buyer on the purchase of the property. You pay SDLT on increasing portions of the property price above £125,000. A 2% charge is levied on the portion between £125,000 and £250,000, 5% on the portion between £250,001 and £925,000, 10% on the portion between £925,001 and £1.5 million, and 12% on the portion above £1.5 million.

There is also a 3% SDLT surcharge for purchases of additional residential properties, such as buy-to-let properties and second homes. The surcharge will apply whether the purchaser is an individual or not, and regardless of where the purchaser is tax resident. However, the surcharge will not apply where the property is the replacement of the purchaser’s main home or the purchaser’s sole residential property worldwide.

Capital Gains Tax

From 6th April 2016, individuals disposing of residential property at a profit are charged Capital Gains Tax (CGT) at the higher 28% rate.

However, there is the potential for relief from CGT on the sale if it is your only/main residence. Where an individual has lived in the property from the date of purchase to the date of sale, any gain arising on the sale is normally covered by principal private residence relief and fully exempt from CGT.

It used to be the case that only UK tax residents were liable to CGT on the disposal of residential property, but rules have gradually extended the scope to include non-UK resident taxpayers.

Income tax and Buy-to-let investors

From 6th April 2016, the 10% wear and tear allowance was abolished for fully furnished buy-to-lets. Since that date landlords have only been able to claim an element of deduction against rental profits for actual amounts spent on replacement furnishings during the year.

Changes are also being introduced to restrict tax relief on loan interest. Currently, full tax relief is available for interest on a loan used in a buy-to-let rental venture. The funds may have been used to purchase the property, to make repairs or improvements, or just fund working capital.

From 6th April 2017, tax relief on interest will be restricted so that by 2020 interest will no longer be an allowable expense, but will instead attract relief at 20% as a reduction to your tax bill.

This change will have a major impact on the owners of buy-to-let property. Therefore, advice will be required to assess the tax impact in order for tax planning opportunities to be explored.

Annual Tax on Enveloped Dwellings

Finally, if you have a company which owns a residential property classed as a “dwelling” on 1st April 2017, then be aware that the Annual Tax on Enveloped Dwellings (ATED) charge could apply, and a return may need to be filed if the property is worth more than £500,000. The annual charge starts at £3,500 and increases, depending on the property’s value.

For further information and guidance, please contact Calvin Healy on 01225 325580, or email