What the Spring Budget now means for property investors, all U-turns considered
Whilst the Spring Budget didn’t include any further measures to significantly hit those specifically investing in property, there wasn’t much to make life easier either.
Following Theresa May’s decision to hold a snap General Election on 8 June, a considerable number of clauses were dropped from the Finance Bill 2017 in order to get this approved by Parliament before the election. Indeed, analysis of the amendments to the Bill found that the government made a U-turn on more than two thirds of the clauses proposed Just 25 of the 84 clauses originally proposed by Chancellor Philip Hammond in the Spring Budget were kept.
Now that we are well into the new tax year and the General Election has passed, here is an update on some of the key measures of the Spring Budget, their implementation dates and the likely impact on investors and landlords.
Delayed introduction of Making Tax Digital
The Chancellor announced that sole traders, the self-employed and buy-to-let landlords with incomes of less than the current £83,000 VAT threshold will not have to start quarterly reporting until 2019 – a one-year deferral from the planned April 2018 introduction date originally issued by HMRC at the end of January.
This will give many landlords more time to prepare for this incoming change in tax reporting, which will require quarterly and end of year submissions of information to HMRC. Whilst April 2019 might sound like a long time in the future, Making Tax Digital could involve significant cost to you both in terms of money and time, and it is not too early to make sure you are prepared. It is safe to say that for some buy-to-let landlords, Making Tax Digital will have a big impact. Leaving a bag of receipts or an excel spreadsheet with your accountant once a year won’t be an option!
There are some excellent cloud-based solutions on the market but it’s time to act now rather than waiting until 2019 and hoping everything will be plain sailing.
Whilst this is not necessarily a U-turn, the Government has certainly backed-down in terms of the timescale for when individuals will have to implement the changes.
If you are confused about the digital transition, you can contact us for guidance.
Reduction in tax-free dividend allowance
It was announced that the tax-free dividend allowance would fall from £5,000 to £2,000 from 2018/19, making it more difficult to get cash out of a company without being exposed to tax at your marginal rate.
Fortunately, the Government made a U-turn and this reduction in the allowance was scrapped to ensure the Finance Bill 2017 gained approval from Parliament prior to the General Election. Watch out though – there’s a chance it’ll come back, so make sure you maximise your dividend allowance before 20 July.
Stamp Duty Land Tax
In August 2016, it was proposed that the filing and payment window for SDLT be reduced from 30 days to 14 days. This was met with criticism across the property sector. Following an HMRC consultation this has now been delayed to 2018/19.
Landlords will eventually face this but for now the reduced payment window will not come into force until 1 April 2018.
Cash accounting for property businesses
Since 6 April 2017, up to 2.5 million unincorporated property businesses with receipts of £150,000 or less have been able to calculate their taxable profits using a cash basis of accounting. This option will be only be available to the simplest property businesses, such as individuals and partnerships.
Put simply, this basis of accounting will mean that a landlord doesn’t declare income until it is actually received so any tax on the profits of the business won’t be due until the rent is received. This should make it easier for landlords to budget for their tax and manage cashflow.
As this rule came into effect before the General Election, it is unaffected.
Offshore property developers
From 8 March 2017, all profits realised by offshore property developers developing land in the UK, including those on pre-existing contracts, are subject to either corporation tax or income tax regardless of the date the contract was entered into.
This change will impact offshore property developers who have made a contract for disposal of UK land before 5 July 2016, but recognise the disposal in their accounts after 8 March 2017.
This is another rule which came into effect before the General Election and is therefore not affected.
As many of the measures dropped from the Bill were revenue-raising, it is prudent to assume that we are still likely to see many of them introduced, albeit in an amended form or at an alternative date. However it is difficult to predict what changes will be made and what the commencement dates will be. We would recommend that taxpayers continue to prepare accordingly.
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