In the first-ever Tax Day, the government made more than 30 tax updates, documents and consultations. What are the implications for property investors?
On Tuesday 23 March 2021, HM Treasury released its “Tax Day command paper”. This was published on a separate day to the Spring Budget to allow for more scrutiny on tax announcements.
The paper outlines the next plans for the government’s 10-year tax administration strategy to build a more modern tax system. There were over 30 tax updates, consultations and documents that will also help strengthen policymaking.
The Financial Secretary to the Treasury, Jesse Norman, says: “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.”
Property-related announcements
There were rumours surfacing that capital gains tax (CGT) reform, and maybe even stamp duty reform, could be included in the paper. Last summer, Chancellor Rishi Sunak asked the Office for Tax Simplification (OTS) to look into how to simplify CGT. In a report, the OTS called for a rise in rates in line with income tax. The OTS also recommended a reduction in the annual allowance.
On Tax Day, there were no announcements on CGT or stamp duty. However, there were several other propositions that will impact businesses and individuals within the property industry, including property investors.
For example, the government will change the criteria for determining whether a holiday let is eligible for business rates. Currently, a holiday let is liable to business rates instead of council tax if an owner declares they intend to make their property available for let 140 days in the upcoming year.
However, at the moment, there are no checks to verify this. The new criteria will ensure the owners of holiday lets who are reducing their tax liability are genuinely making an effort to let the property out.
The command paper states: “The government will legislate to change the criteria determining whether a holiday let is valued for business rates to account for actual days the property was rented, following a previous consultation. This will ensure that owners of properties cannot reduce their tax liability by declaring that a property is available for let while making little or no actual effort to do so.”
Additionally, the government will publish a consultation on a new tax on the largest residential property developers. This will help pay for the costs of cladding remediation. The tax will come into effect in 2022. Some in the industry feel this could cause prices for new-builds to increase.
What does this mean for property investors?
Some property professionals predict CGT changes could come in the Autumn Budget with implementation in 2022. If CGT rates increase, buy-to-let property investors and landlords will change the way they do business.
In the past few years, many have successfully adapted to a number of tax changes. And the industry will continue to do so. If CGT rates change, buy-to-let landlords will likely hang onto property investments for longer. Some landlords will also likely sell properties before the rates take effect.
Many in the property industry are recommending landlords to prepare for CGT changes in the future. It may become more important to rely on strong rental yields, instead of focusing on capital appreciation. And with any property investment, it’s best to have a long-term outlook.
