Page 11 - Town & Around - May 2024

Tel: 01485 540620 email: editor@townandaround.net Town & Around May 2024 11
PROPERTY TAX MATTERS: BEWARE 60-DAY REPORTING DUTIES!
By Kathryn Gigg Chartered Accountants, Hunstanton
he rented property sector has had its ups and downs over the
past few decades. Prior to 1988 the sector was virtually
Tmoribund. Most tenants had controlled rents and security of
tenure, and as a result whenever a property became vacant it was
almost always sold rather than being relet.
The abolition of secured tenure in 1988, coupled with a number of
other factors, such as an increase in personal wealth (partly helped by
inheritances from the first generation of post war owner occupiers),
the demise of local authority housing and the introduction of buy to
let mortgages has led to a significant growth in the private rented
sector, rising from 2 million properties in 2000 to about 4.6 million in
2023. This represents about 20% of the housing sector.
A similar set of circumstances has led to the rise of second home
ownership and, following the introduction of special tax rules in 1984,
the Furnished Holiday Letting sector. It is now thought that there are
about 500,000 second homes in the UK of which about a quarter are
used for the holiday letting market.
The current perceived political impact of all these developments
appears to be that reducing the attraction of private letting and second
home ownership will in some way bring down the cost of rents and
bring more homes onto the rental market, presumably also bringing
down the price of housing. It is not entirely clear whether both (or
indeed either) of these changes will be accomplished but fiscal
legislation in recent years has removed full tax deduction on residential
interest costs, increased Stamp Duty on acquisitions and, in the 2024
Budget, removed the tax advantages of holiday lets. Council Tax is
also being used in the process such that second home owners may pay
a higher level of Council Tax (contrasting with the position in the
1990s when second homes had a Council Tax discount). The regulatory
framework is also changing with Budget 2024 bringing in a register
of holiday lets and a new planning class, and the Renters’ Reform Bill
introducing a register of landlords, minimum quality standards and,
most contentious of all, the effective reintroduction of security of
tenure. With the removal of the Section 21 eviction process, a landlord
will no longer be able to remove a tenant at the end of a shorthold
tenancy. Even where the property is required for family occupation or
sale, the process will need to go to court.
The consequence of all these changes may be that an owner
considers selling up and investing elsewhere. However, since most
properties will have increased in value in recent years, there is likely
to be some Capital Gains Tax (CGT) at stake. Here the position
becomes complicated. The reduction in personal allowances over the
last two years means that far more of the gain will be taxed – for
example, a couple making a gain of £50,000 might only have paid tax
on a little more than half that gain in 2022/3. In 2024/5 the chargeable
amount would be nearly 90%. Moreover, because the effective rate of
CGT depends on the level of income, inflation and the freezing of rate
bands, the result is that at least some of that gain will probably now be
payable at the higher rate. To some extent this was recognised in the
2024 Budget, with the rate of CGT on residential property gains being
reduced from 28% to 24% but nonetheless the liability will still be
substantial. Using the example above and assuming the couple had
personal income of about £35000 each, in 2022/23, the tax payable properties “suitable” for dwelling, properties under construction and
might have been about £4,500. In 2024/5, assuming the personal rights to properties bought “off plan”. The submission of a CGT Return
income had risen by £10,000 the CGT bill would be closer to £10,000. in this way does not always remove the requirement to complete a Self
At this level it is by no means clear that the fiscal disincentives alone Assessment Tax Return at the end of the tax year, and any over or
will be sufficient to drive the structural change which the government underpayment of tax can be picked up at that point.
seem to be pursuing. The gains must in most cases be reported digitally and ideally tax
There is, however, evidence that property sales are now being paid electronically at that point. Failure to comply will result in an
accelerated to some extent by the changing attitudes towards the sector. initial late filing penalty of £100. If the Return is three months plus
Where one does decide on a sale it is important not to overlook the late, further material penalties will be due. In addition, there is a
major change in the reporting of a residential property CGT event further penalty due on tax paid late, starting at 5% of the tax due, and
which was introduced in 2021. It is now necessary to report a Capital then repeating after 6 and 12 months.
Gain on residential property and pay the relevant tax within 60 days The reporting and computation of property Capital Gains is a fairly
of completion. The rules apply to all individuals, trustees, executors, complex process particularly if there have been changes of ownership
and partners, and cover residential property gains unless relieved by or enhancement expenditure over the period of ownership or if it has
personal exemptions (including main residence relief) or brought been used for different purposes over the years. For example, a
forward losses. “Residential property” includes not only houses used property which was part purchased and subsequently partly acquired
as dwellings and their gardens, grounds, and outbuildings, but also by inheritance, extended, used as a main residence, then as second