Spring Budget 2024 – property tax has never been so popular!

A number of announcements were made in respect of property taxation, many of which were suggested as a way to influence taxpayers.

Too much can be a bad thing

So, the theory goes, if you increase tax rates then revenue increases, but there comes a point when the increase influences taxpayers and revenue begins to fall – the Laffer Curve.

Back in 2016, the Government introduced a higher rate of capital gains tax in respect of residential property – this was to create a “strong enterprise and investment culture” and provide an incentive for individuals to invest in assets other than residential property.

In an announcement today, the Chancellor reduced the higher rate of capital gains tax that applies on residential properties from 28% to 24% with effect from 6 April 2024. The lower rate of capital gains tax applying to residential properties (in respect of gains falling within an individuals’ unused basic rate band) will remain at 18%.

Whether this will be enough to encourage landlords and second home-owners to sell their properties (as the Chancellor suggests) is questionable – surely, if this was his objective, then a ‘second home tax’ or ‘landlord tax’ would have been a better option.

The benefit of a ‘granny flat’

The Government opened a consultation back in November 2021 in respect of stamp duty land tax (‘SDLT’) and the particular provisions of mixed-property purchases and multiple dwellings relief.

Mixed property purchases involve a purchase which consists of both residential and non-residential property, such as a shop with a flat above it – these attract the lower non-residential rate of SDLT and it was confirmed today that this will remain as is.

Multiple dwellings relief applies where two or more dwellings are purchased in a single transaction or as a part of a series of transactions – the relief allows, in broad terms, for the rate of SDLT to be charged by reference to the average cost of individual properties as if they were separate transactions.

Without this relief, SDLT would simply be charged on the total consideration as the single transaction, and therefore at a higher (and often the highest) rate, so somewhat of a logical relief to have?

Well, as the Government believes that multiple dwelling relief “no longer achieves its original aims”, it will be abolished with effect from 1 June 2024 – in many respects, this is probably due to the ‘granny flat’ effect, where purchases claim that there are two dwellings so as to fall within this relief.

As ever, a change like this can never be that simple, so transitional provisions will ensure that the relief is still available where contracts are exchanged on or before 6 March 2024 – as you would expect, this will be subject to a number of exclusions.

Rebalancing the letting market

As a way to level the playing field in holiday hotspots, the Chancellor announced the plan to abolish the furnished holiday letting regime from April 2025.

This regime brings with it special benefits which are not available on the letting of other residential accommodation, by allowing the activity to be treated as a trade for certain tax purposes, the profits to count towards earnings for pension purposes and capital allowances to be claimed on furniture, equipment and fixtures.

With this comes a set of rules, with a particular focus on the property being available and used for short-term letting. The result – holiday hot spots are full of furnished holiday lets with no housing for locals to rent.

Whether this change will lead to the desired effect and result in the properties being let to local people or not is questionable, and only time will tell. One thing for sure though, is a set of widely drafted anti-forestalling provisions – these will take effect from 6 March 2024 and prevent anyone trying to take advantage of the current advantageous capital gains tax rules on these properties by artificially accelerating a disposal.

If you would like to discuss this in further detail, please get in touch with your usual contact or e-mail us at experts@tacs.co.uk.

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