Further Changes to Taxation of UK Property

The 2017 Budget introduced further changes to the taxation of UK property income for non-resident, corporate and private landlords.  A summary of those changes are as follows:

Non-residents

Since 6 April 2015, non-resident landlords of UK residential property have had to account for capital gains tax on the gains they make on the sale of that property.  The gains are restricted to the period since 6 April 2015 and any gains are reportable and tax payable within 30 days of the sale of that property.  However no UK tax is payable by a non-resident landlord when they sell commercial property located in the UK. This encourages tax avoidance by using offshore structures to hold UK commercial properties.

To block such tax avoidance, gains made on any immovable property will be subject to UK tax from 6 April 2019.

The tax charge will also apply to indirect property-related gains, ie where a company/ other entity with 75% or more of its gross asset value made up from UK immovable property is sold. Anti-avoidance rules will apply from 22 November.

Companies

When an asset is sold for a profit part of the increase in its value will be due to the general rate of inflation. Since April 1982 this inflation-related growth in value has been excluded from the taxable gain by the operation of indexation allowance.  Indexation relief was removed for individuals in 1998, but it remained for companies, but it will now be frozen from January 2018. This could be the first step towards removing this allowance altogether for companies.

Private landlords

In April 2013, HMRC’s concession to allow landlord’s to use the flat rate for mileage (currently 45p/mile) was removed.  Since then, landlords should have been using the actual expenses and appropriate proportion of capital allowances for the vehicle used for business related journeys.  For simplicity’s sake, the Budget has reinstated that concession from 6 April 2017.  Landlords can therefore use the 45p/mile rate for the 2017/18 tax years onwards.

Corporate landlords, and partnerships with corporate members, will not be permitted to use the fixed rate mileage deductions.