24th
Mar 2021
The extremely hyped government’s ‘tax day’ yesterday (Tues 23rd March) had little consequence on the property sector. But one tax expert sends out a stark warning to landlords because of the ‘hidden’ change in the government’s Making Tax Digital programme.
Katherine Archer, tax expert at an accountancy practice explained: “Of particular note is the confirmation that Making Tax Digital for income tax is set to go ahead in April 2023, as it will fundamentally change how those receiving rental or self-employed income, for example, file their tax returns.
“This in turn ties in with the proposed changes to timely payments, which could see those who pay through tax returns reporting quarterly or even monthly, as opposed in two installments a year.”
She continued: “These changes could result in a significant overhaul of the tax system as we know it, and although it could see both the self-employed and landlords facing a hefty administrative task as they get to grips with the new reporting methods, it will ultimately help to streamline and modernise the current system.”
The MTD programme has been delayed in the past few years but is now at the forefront after the government’s announcement, with many predicting that there would be changes made to Capital Gains Tax and Stamp Duty Land Tax failing to materialise.
But there is one specific pledge that landlords should be made aware of and it is the government’s intention to squeeze taxation in one area which will affect property investors who have holiday lets; currently this tax status is better for investors than BTL.
The reason being is that HMRC categorises a ‘furnished holiday let’ as a business with lower taxes. However the owners must meet the following condions, such as the home must be advertised as available to let for 201 days a year and must be let for the minimum of 105 days, with each single letting not exceeding 31 days. The property has to be fully furnished.
Although the criteria is precise and by following the rules it makes financial sense to be categorised as a business. It also means that investors will pay business rates instead of in most cases the higher council tax. Besides owners offsetting costs against tax, one other major factor is that when selling a holiday let the Capital Gains tax is lower than for a buy-to-let property.
The government has the holiday letting option within their sights.
The government’s announcement on long-term tax reform included the statement: “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.”
It continues: “Further details of the change and implementation will be included in the Ministry for Housing, Communities and Local Government’s response to the consultation on the business rates treatment of self-catering accommodation which will be published shortly.”
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