The Chancellor’s announcements regarding stamp duty and capital gains tax in his July fiscal event were welcomed by both second home buyers and buy-to-let landlords.
Although the temporary increase in the Stamp Duty Land Tax (SDLT) threshold to £500,000 was aimed at those buying their main residence, it also benefits those buying a second or subsequent property where there is a 3% supplementary charge. Thus, the rate of SDLT on a second home costing up to £500,000 is now 3%. Previously, the rate was 3% up to £125,000, then 5% up to £250,000 and then 8% up to £825,000. So the SDLT on a second home costing £400,000 is now £12,000 compared to £22,000 if the purchase had completed before 8 July 2020.
Note that there are different thresholds and rates of Land and Buildings Transaction Tax for properties located in Scotland and Wales.
Reporting Property Gains within 30 days
Since 6 April 2020 where UK residential property is disposed of, the resulting capital gain needs to be reported and the capital gains tax paid within 30 days of completion of the disposal. There have been a number of teething problems with the new online reporting system and HMRC stated that there would be no penalties imposed for late returns, provided the returns were submitted by 31 July 2020. Taxpayers need to obtain a Government Gateway account and apply for a CGT or property reference number to report disposals, although they can authorise their accountant to report the disposals on their behalf.
Currently only the first disposal may be reported using the online reporting system with any subsequent disposals being reported using a paper return. We have been told that the new system will be fully functional shortly.
Rumours of CGT increases
There has been a lot of speculation in the Press that the Chancellor may introduce radical changes to capital gains tax to start to repay the substantial Government borrowings to support businesses and employees affected by the coronavirus pandemic.
It has been suggested that the current £12,300 CGT annual exemption will be reduced and the rates aligned with the rates of income tax. It has also been suggested that the capital gains uplift on death may be abolished following recommendations by the Office of Tax Simplification and the House of Commons Treasury Select Committee.
The Treasury Committee has recently launched a new inquiry called ‘Tax after coronavirus’. That inquiry will consider different ways of raising taxes, in particular a thorough review of UK tax reliefs which has also been recommended by the Public Accounts Committee.
The Chancellor has also hinted that there may be radical changes to the way that the self-employed and directors of family companies may be taxed in future.
What changes are you expecting to be announced in the Budget to help the country’s economy recover from the coronavirus pandemic? Do you think landlords and second home owners will be hit with higher taxes later?
If you’d like to discuss your individual circumstances and get some impartial advice from a professional tax advisor, please get in touch.