November Property Newsletter
SDLT threshold changes
In the UK mini-budget in September, the government announced that it would increase the threshold at which SDLT must be paid on the purchase of residential properties in England and Northern Ireland.
From 23 September 2022, the ‘nil-rate’ threshold was increased from £125,000 to £250,000 for residential properties. This means that property bought for less than £250,000 will not be subject to SDLT unless it’s the purchase of a second home.
The government has also made a point to further support first-time buyers. They have increased the threshold on which first-time buyers begin to pay SDLT from £300,000 to £425,000, as well as increased the maximum property value on which relief be claimed from £500,000 to £625,000.
This change eliminates the 2% SDLT band that previously applied for the purchase of a property between £125,000 and £250,000.
While the government’s plan is to make buying a home more affordable, some experts have stated that the lack of houses on the market may mean that increasing demand for homes will only fuel prices even higher, making home ownership seem farther away than ever before.
Rising interest rates and the effect on mortgage deals
In September, the Bank of England raised rates by 0.5 percentage points to 2.25%, the highest level in 14 years. They also mentioned that they wouldn’t hesitate to make further increases. One estimate suggests that rates could reach as high as 6% next year.
Due to these concerns, hundreds of residential mortgage deal offers in the UK have been pulled. Major lenders including HSBC, Santander and NatWest either completely pulled mortgage offerings from the market or repriced their products with increased rates.
Despite these concerns, experts have stated that borrowers should not panic. Instead, they should seek advice from an independent broker as these measures to withdraw offerings are temporary. More offerings should become available once there is more certainty surrounding the interest rates.
Please speak to us if you would like to discuss this further.
Landlords require financial help to meet EPC targets
The organisation Propertymark has urged the government to provide financial and tax incentives to landlords to meet ambitious EPC targets.
As part of the government’s plan to be net zero by 2050, all properties in the private rented sector (PRS) in England and Wales will require an Energy Performance Certificate (EPC) rating of C or above by 2028. New tenancies will need to achieve this by 2025. In addition, the fine for not having a valid EPC will be increased from £5,000 to £30,000 from 2025. There have also been discussions to make an EPC B rating mandatory by 2030.
Data suggests that over 60% of PRS properties have an EPC of D or lower. Landlords are concerned about the costs involved in achieving this goal, and even with a government-backed cost cap of £10,000, it will be a challenge for landlords with a smaller portfolio.
Propertymark has submitted a written request to the government to provide a package of financial and tax incentives to support these landlords.
Why you should not buy a holiday let if you intend to stay in it
Holiday lets are a great investment and offer several benefits including Capital Gains Tax relief and capital allowances for furniture and fixtures. We have written a previous blog on the tax advantages of holiday lets if you have not considered this as an investment.
However, there are strict letting conditions, and if you intend to stay in the property for part of the year, this could mean that the property no longer qualifies as a holiday let.
Beware though – a couple of big pitfalls could arise if you bought the holiday let through a limited company and then used it for private purposes as well. Below we explore some taxes that might become payable by staying in your holiday let.
Annual Tax on Enveloped Dwellings (ATED) is a tax that companies must pay if their UK residential property value exceeds £500,000. The tax is payable by companies that own such a dwelling and the amount of tax payable depends on the property’s value.
You will need to complete an annual ATED return if the property is located in the UK, is considered a ‘dwelling’ (a sufficiently self-contained unit), is valued at more than £500,000 and is owned completely or partly by a company, partnership or collective investment scheme.
The chargeable amounts for the 2022/23 tax year are as follows:
|Property value||Yearly charge
|£500,000 – £1 million||£3,800
|£1 million – £2 million||£7,700
|£5 million – £10 million||£60,900
|£10 million – £20 million||£122,250
|More than £20 million||£244,750
There is an exemption for company owned properties that are used for rental purposes or development, but in the case of property used personally by the company directors the exemption would not apply.
Benefit in Kind
Benefits in kind (BIK) are benefits that directors or employees receive from their company that are not included in their salary. This may include property and living accommodation benefits.
If a company purchased a holiday let for its director(s), you should check how much tax you will need to pay and for how much of the year it applies. You can find a detailed example below.
A UK company purchases a flat in France for £200,000. The market rental price for the property would be £500 per week during the 6-month skiing season and £100 per week during the rest of the year. A husband and wife who are both directors of the company use the flat for holidays 4 weeks per year (3 weeks during ski season and 1 week during the slow season). The sole reason the property was bought was as a holiday home for the couple and it has only been used as such.
Because the flat was habitable for the entire year, HMRC would seek a benefit measured on availability for the whole year (even though they only use it for 4 weeks).
Therefore, a cash equivalent for the tax year would be £15,600. This is calculated as 6 months of ski season at £500/week (£13,000) and 6 months off-season at £100/week (£2,600). Each director would pay tax on their half share at their top rate of tax. So say they are higher rate taxpayers their tax bill would be £3,120 each annually. The company would also pay national insurance at 13.8%, so £2,153 per year.
If the property was personally owned, different tax rules would apply and the bill would be significantly lower.
Please contact us if you are considering making any property investments. We can advise you on the best (and most tax-effective) way to proceed.
The content in this article is correct as at 23rd November 2022. See terms and conditions.