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Additional 3% SDLT charge

A reminder that the Additional 3% SDLT charge is now in place.

If you are planning the purchase of a UK residential property and you own another property at the time of the purchase, then you may need to consider whether or not you may be liable to the additional charge to Stamp Duty Land Tax (SDLT).

The additional 3% rate of SDLT for those purchasing ‘additional residential properties’ in England and Wales, such as second homes and buy-to-lets, is due to apply to completions from 1 April 2016, subject to some transitional relief (FB 2016 cl 117).

The increased SDLT rate will apply where, at the end of the day on which a property is acquired, the individual concerned owns two or more residential properties and is not replacing his or her main residence, which has been sold within the last 18 months.

Married couples and civil partners (unless they are separated in circumstances likely to be permanent) will be treated as a single unit for this purpose.

The 3% additional SDLT rate will also apply where an individual has sold their main residence and it takes them more than 36 months to complete the purchase of a new one, provided of course that the individual has more than one property at the end of the day the new property is acquired.

Where property is being purchased jointly, the additional 3% SDLT rate will apply to the entire value of the additional property if any of the joint owners already own a residential property.

In Scotland a supplementary transaction tax of 3% (now called the additional dwelling supplement (ADS)) will apply to second homes or buy-to-let properties.

The government have made a U-Turn with regard to the new tax being applied when a property is purchased with an annex, especially where the purchase is made to provide living accommodation for an elderly relative.  More details can be found here:

http://goo.gl/MFjhuP

Do contact us if you have any queries.

Trivial Benefits in Kind

Here is an overview of the new Trivial Benefits in Kind rules.

From 6 April 2016 a new exemption removes liability to income tax for low value Benefits in Kind (‘trivial BiKs’). This new exemption is being legislated as part of Finance Bill 2016 (FB16) and is subject to Parliamentary approval. The previous administrative practice where employers could agree with HMRC that certain BiKs could be treated as trivial and did not need to be returned to HMRC at the end of the tax year no longer applies.

Draft guidance on the new exemption has been published on GOV.UK. This guidance will be incorporated in HMRC’s Employment Income Manual later in the year after FB16 receives Royal Assent.

General conditions

To qualify as a ‘trivial BiK’ conditions A-D must be met:

 

Condition A – the BiK must not be cash or a cash-voucher;

 

Condition B – the BiK must cost £50 or less;

 

Condition C – the BiK must not be provided as part of a salary sacrifice or other contractual arrangement; and

 

Condition D – the BiK must not be provided in recognition of services performed by the employee as part of their employment, or in anticipation of such services.

 

There is no limit to the number of trivial BiKs that can be provided to an employee in a tax year where all conditions are met, unless Condition E applies (see below).

 
Close companies

 
Condition E applies an annual £300 cap where a trivial BiK (that meets conditions A to D) is provided by an employer that is a close company to an employee who is a:

 

  • director or other office-holder of the close company, or

 

  • member of the family or household of a director or other office-holder of the close company.

 

If you have any queries regarding the new Trivial Benefits in Kind Rules or any other employment matter, do not hesitate to contact us.

Lifetime ISA

In his Budget speech today, the chancellor George Osborne announced: Lifetime ISA

This is a quick summary of how they will work.

Save up to £4,000 each year, and receive a government bonus of 25% – that’s a bonus of up to £1,000 a year. You can use some or all of the money to buy your first home, or keep it until you’re 60 – it’s up to you.

* open a Lifetime ISA account between the ages of 18 and 40, and any savings you put into it before your 50th birthday will receive an added 25% bonus from the government

* accounts will be available from April 2017

* there is no maximum monthly contribution – you can save as little or as much as you want each month, up to £4,000 a year

* the total amount you can save each year into all ISAs will also be increased from £15,240 to £20,000 from April 2017

use it to save for a first home

* your savings and the bonus can be used towards a deposit on a first home worth up to £450,000 across the country

* accounts are limited to one per person rather than one per home – so two first time buyers can both receive a bonus when buying together

* if you have a Help to Buy: ISA you can transfer those savings into the Lifetime ISA in 2017, or continue saving into both – but you will only be able to use the bonus from one to buy a house

use it to save for retirement

* after your 60th birthday you can take out all the savings tax-free

* you can withdraw the money at any time before you turn 60, but you will lose the government bonus (and any interest or growth on this). You will also have to pay a 5% charge

Good news on the horizon for landlords

The taxman is becoming quite adept at sleight of hand tricks, whereby tax rules and reliefs are mysteriously changed or removed overnight.  On such relief was for landlords of unfurnished properties and the withdrawal of what was known as the ‘renewals’ relief.  Under this practice landlords could claim relief for the renewal of items in their rental properties such as; fridges, carpets, curtains, beds etc.  From 6 April 2013, the taxman made the renewals basis disappear, leaving landlords potentially out of pocket, when renewing items in their properties.

Landlords who let properties fully furnished were not able to claim the renewals relief but are entitled to an annual wear and tear (W&T) allowance based on 10% of the rental charges, and this was intended to cover the costs of renewals.  The W&T allowance is still available and this has led to a somewhat uneven pitch for landlords.

The good news is that the taxman is aiming to level the playing field for landlords.  HMRC have published a consultation document in which it discusses proposals to replace the W&T allowance with something that looks remarkably like renewals relief!

Under the proposals the initial cost of furnishings etc. will not be allowed as a deduction against rents (like it was under the renewals relief).  The cost of renewing items provided for the tenant’s use in a rented property will be allowable as a deduction (as was the case under renewals relief).

It should be noted that fixtures integral to the property such as baths, fitted kitchen units and boilers are not included.  However these costs would normally be allowable as a repair the property.

So as I see it, the result of the new proposals are to remove the W&T allowance for landlords of fully furnished properties and reinstate a sort of renewals relief for all landlords.

If the proposals go ahead the changes will come into effect from April 2016, so landlords may need to look closely at the timing of replacing items in their buy to let properties.

The consultation can be viewed on the GOV.UK website  at  https://goo.gl/eIz4De.

The consultation will be open until 9 October 2015 and any responses should be e-mailed to wearandtear.replacement@hmrc.gsi.gov.uk before that date.

We advise clients on all aspects of their rental income business, it makes sense to talk to us.