Property tax changes expected this financial year!
In light of the new budget, some property tax changes are due to come into effect over the next financial year. Although details are still sketchy, we have written an overview of what property tax changes are expected.
The government is looking to clampdown on people who claim 'holiday let' tax breaks on their second home!
People who own a second home will soon no longer be able to claim tax breaks by declaring that it’s a holiday let. Many who own a second home claim their property as a holiday let by declaring rent. The advantage for homeowners is that many of these properties qualify for Small Business Rate Relief, meaning that if the rateable value is £12,000 or less, they do not have to pay any tax. Claiming Small Business Rate Relief, means that the property is exempt from council tax, saving the homeowner thousands of pounds over their time of ownership.
The government is looking to tighten these rules by forcing people who claim their second home as a holiday let, to actually let it out for 140 days or more a year.
There are around 60,000 self-catering premises registered in England that are registered for business rates, of which 96% are expected to qualify for the Small Business Rate Relief. With companies such as Air B&B and Booking.com, it’s unknown how many second homes are genuinely being rented out on the market.
It’s expected that a large number of these homes are rented due to the ease of promoting a property using any of the platforms above.
The government has also announced an additional property tax for developers. The new residential property developer tax, which will come into effect in 2022, is expected to raise circa £2bn over the next decade after its introduction. This money will be used to replace unsafe cladding for leaseholders in residential buildings, which are more than 18 metres or six floors high.
The government is also looking to introduce simplified inheritance tax reporting requirements, which is excellent news for property owners, especially since their family home is one of the most valuable assets they own.
The simplified inheritance tax reporting means that people will no longer have to complete inheritance tax forms if the estate is not liable for tax. The new simplified inheritance tax reporting system is expected to be introduced in January 2022.
In addition to the above tax changes, the government is also looking at ways to make VAT exemptions clearer on land and property. Certain types of property transactions attract VAT. For example, if a landowner converts a commercial building into a residential one, this attracts VAT. However, this is not a simple process and one that has many complex rules for calculation.
Simplifying these rules will mean that it will become much more transparent for landowners to know when they are liable for VAT.
The Financial Secretary to the Treasury Jesse Norman said: "We are making these announcements in order to increase the transparency, discipline and accessibility of tax policymaking.
"These measures will help us to upgrade and digitise the UK tax system, tackle tax avoidance and fraud, among other things.
"By grouping them together, we want to give Members of Parliament, tax professionals and other stakeholders a better opportunity to scrutinise them."
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