Property tax changes following the Budget

What you need to know about the recent tax changes in Property Investment following the Spring Budget 2024

In recent Budget 2024 announcements, changes to taxation laws have sent ripples through the property investment landscape. While adjustments may initially seem daunting, they present opportunities for savvy property investors to adapt and thrive in an evolving market. Let’s delve into the recent updates and explore their potential impacts and resulting strategies for maximising your property investments.

Abolishment of Multiple Dwellings Relief (MDR)

Jeremy Hunt announced the abolishment of Multiple Dwellings Relief (MDR) from 1st June 2024, a relief that has long provided reductions on Stamp Duty Land Tax for those purchasing more than two properties from the same buyer in a single transaction.

In particular, this could significantly impact homebuyers who purchase a property with a “granny annexe” to accommodate elderly relatives.

This impact will also be seen by Property Investors looking at purchasing several flats within the same block together. Previously, you could take the average cost per flat and pay lower rates of Stamp Duty Land Tax per flat, whereas if the relief is abolished the total combined consideration is charged to Stamp Duty Land Tax resulting in potentially a much higher overall Stamp Duty Land Tax bill.

Notably however, Property Investors who purchase multiple properties of equal value remain unaffected e.g if all properties are valued at £400k. Moreover, buyers of six or more properties or those with mixed residential and non-residential elements, e.g. a flat above a shop, can still benefit from applying Non-Residential Stamp Duty Land Tax rates which are capped at 5%.

In light of these changes, Property Investors may consider exploring the benefit of purchasing multiple properties already owned by limited companies, capitalising on the lower Stamp Duty rate of 0.5% on the purchase of company shares. However, such a strategy requires careful consideration of the existing company’s credit rating and filing history.

Adapting to these changes is crucial for you to optimise your strategies and navigate the evolving property market landscape.

Capital Gains Tax (CGT) for Sale of Residential Property

With the upcoming reduction in the CGT rate on residential property from 28% to 24%, effective from 6^th April 2024, higher rate taxpayers currently in the process of selling a residential buy-to-let or second home may find it advantageous to delay exchanging contracts for a few weeks, to benefit from the lower tax rates.

However, it’s important to note that if the gain on your property is less than £24,000 and you haven’t utilised your tax-free annual exemption of £6,000 in the tax year to 5^th April 2024, delaying to the next tax year may actually result in you paying slightly more tax on your disposal. This disparity stems from the annual tax-free CGT exemption also reducing to £3,000 after this date.

Additionally, it’s crucial to remember that tax on the sale of UK residential property is due 60 days after completion; you can’t just wait until you do your next tax return!

If you’re in the middle of selling a property already, or if you plan to do so shortly, speak to your Client Manager (and if you’re not a client, book a free 1-2-1 with us now!) to ensure compliance with current tax requirements.

For further details on 60-day Capital Gains Tax reporting, please refer to our article here. Non-compliance with these regulations could incur hefty interest and penalties being imposed by HMRC.

Abolishment of “Furnished Holiday Let” rules

Effective from 6^th April 2025, significant changes will affect those with Furnished Holiday Lets (FHLs), aligning them with standard Buy-to-Let properties in terms of tax implications. These changes include the cessation of such current benefits:

• higher rate tax relief on 100% of mortgage interest costs
• 10% Capital Gains Tax (CGT) rate on property sales
• the ability to claim capital allowances on furniture fixtures and fittings
• using the income as ‘net relevant earnings’ towards pension contributions

The unexpected total abolition of these rules will bear significant implications. Notably, properties previously designated as holiday lets potentially increasing CGT on property sales from 10% to 24%.

Another impact here is on pension contributions. Pension contributions made by individuals are presently capped at either £3,600 or 100% of their Net Relevant Earnings. Currently, income derived from FHL’s is considered as part of these relevant earnings. However, from 6^th April 2025 if you depend on income from FHL’s to support the level of pension contributions you want to make, you will need to reconsider your position.  Get in touch with your client manager (if you’re not a client, book a free 1-2-1 with us now) if this is a concern for you.

However a silver lining remains in the form of FHL owners no longer having to grapple with VAT registration concerns

It’s also essential to recognise that while FHLs are just one facet of Serviced Accommodation, certain classifications like Hotels and Hostels may still retain tax benefits. As we gain clarity on this, we’ll update you.

One potential solution for FHL owners is transferring properties into a limited company before 5^th April 2025 to preserve the 10% CGT tax rate on increases in value to date and allowing 100% mortgage relief to continue. Nonetheless, meticulous planning is essential as this strategy may incur Stamp Duty Land Tax and immediate CGT charges.

While the Chancellor’s move to cut Residential Property CGT taxes is appreciated, the simultaneous removal of FHL tax benefits raises concerns. It’s unclear how this change will aid in freeing up properties for locals in tourist hotspots, potentially discouraging sales in such areas instead. As the landscape evolves, we will continue to provide updates and advice for property investors like you.

VAT Registration Threshold Increased to £90,000 from 1 April 2024

From 1^st April 2024 the VAT registration threshold sees a welcome increase, although only to £90,000, benefiting businesses teetering close to the previous £85,000 threshold such as ‘Property Deal Sourcing’ and ‘Serviced Accommodation’ ventures.

Originally designed to aid smaller businesses in streamlining operations, the VAT registration threshold has remained stagnant since 2017. Considering inflationary trends, an ideal threshold today would hover around the £108,000 mark, something which the new £90,000 threshold falls notably short of

After years of static thresholds, some might argue that this adjustment arrives too late to make a substantial impact. There’s a valid debate that holding back a business solely to evade VAT registration may not be the wisest strategy.

For businesses already VAT registered, it’s crucial to note the new deregistration limit has also changed from 1^st April 2024 to £88,000. If your business previously hovered just above the £85,000 threshold, it’s recommended to assess your 12-month rolling turnover leading up to 31^st March 2024, to determine whether deregistration is warranted. Nevertheless, it’s advisable to weigh this decision carefully against your business’s projected performance to avoid frequent hopping in and out of registration.

High Income Child Benefit Charges – Threshold Increased to £60,000

From 6^th April 2024 the higher income child benefit charge threshold is increasing from £50,000 to £60,000.

This will benefit Landlords who own property in their personal name where take home net profit is around £50,000, but for tax charge purposes the add back of section 24 mortgage cost restrictions forced their income to be shown as over £50,000 which previously resulted in the need to pay back some of the child benefit.

The banding for which the child benefit is gradually paid back is also expanding to between £60,000 and £80,000, which will mean that even if you are still just over £60,000 threshold on paper less child benefit will need to be repaid back to HMRC than perhaps before.