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6 changing property taxes you need to know
1 February 2022
With COVID support packages coming to end and Autumn budget plans in motion, there’s a lot of change to get your head around… again.
So we’ve summarised some of the most key points you need to know. Some are relatively recent, and some have yet to come into effect, but in some way or another, these new measures and taxes could affect you and your business…
1. Watch out landlords… HMRC are focusing on capital gains tax payments
There’ve been a number of changes to Capital Gains Tax reporting for Landlords over the past few years, so it’s vital your records and reporting are all up to date.
It’s suspected that with the recent extension of 30 days to 60 days for Capital Gains Tax (CGT) on residential properties, that HMRC will take a stricter stance on those failing to adhere to the reporting obligations. So, ensure your affairs are in order, and that all filing and payment obligations are met on time.
2. THE REDUCED RATES FOR HOLIDAY LETS HAS INCREASED
The reduced VAT rate for holiday homes/accommodation of 5% was increased to 12.5% on 1st October 2021. It is, currently, set to return to 20% from 1 April 2022.
3. The ‘VAT holiday’ of reduced rates has now finished for holiday lets
Beware. The temporary reduction in rates for holiday homes/accommodation has now ended and they’ve since increased from 5% to 12.5% on 1st October 2021.
4. For any property developers, there’s a new tax coming into effect from 1st April 2022
For any companies who undertake UK residential property development (and have annual profits of over £25 million), make sure you’re aware of your tax obligations. From 1st April 2022, a new ‘Residential Property Developer Tax’ of 4% on profits will be introduced. This will affect any business or group of companies whose accounting periods end after 31st March 2022.
5. Don’t fall for the obvious traps – VAT and Tax pitfalls when developing student accommodation
Developers of student accommodation should be aware of the difference between accommodation classed as ‘dwellings’ and accommodation certified as ‘relevant residential’ for VAT purposes. ‘Dwellings’ being the more attractive option, as you remove the need to keep an eye on the use of said building over the next 10 years following its build. If a ‘Dwelling’ is constructed, the zero-rate VAT rules not only apply to the main contractors, but to the qualifying construction services provided by the sub-contractors too. That is not the case with certified relevant residential buildings.
Care should be taken when structuring via a special purpose vehicle – to ensure that VAT can be recovered on professional services where the usual 20% is charged. If there are any planning conditions imposed, preventing separate use or disposal of studio/cluster flats within the development itself, this could change the possibility of VAT recovery if you were solely relying on a qualifying dwelling classification.
6. From commercial to residential… knowing and understanding where the 5% rate on dwellings apply for VAT purposes
Changes have come into play on VAT compliance relating to the conversion of commercial to residential. For developers, it’s vital to understand when the 5% rate on dwellings applies if you are converting a property that has previously been used for commercial purposes for the last ten years.
Where a commercial building is converted into one or more dwellings, a rate of 5% VAT normally applies to costs directly incurred on works undertaken on the building itself. Professional costs such as accountants and architects fees are specifically excluded from this reduced rate.