New Capital Gains Tax rules on the sale of residential property

28 June 2019

Jennie Brown – Tax Specialist


Selling Residential Property? Soon you will only have 30 days to pay your Capital Gains Tax!

The government have decided they want to receive the tax on residential property sales much sooner, and so the rules have been changed.

From April 2020, UK residents who dispose of UK residential property will need to pay Capital Gains Tax (CGT) and submit CGT returns, within 30 days of completion of the sale.

For example, if the sale completes on 1 July 2020, the CGT will be due by 30 July 2020.

Currently taxpayers have either 10 or 22 months to pay CGT, so this is a big change and there will be penalties and interest charged for failure to comply with these rules.

Due to HM Revenue & Customs (HMRC) plans to ensure the change in rules are communicated to the public, it will be much harder for those who miss the deadline, to successfully appeal against any penalties. It is therefore crucial you seek tax support to ensure you comply with the new rules. Ellacotts can take the stress away and undertake the CGT tax return work for you.

The new rules apply to individuals, trustees and personal representatives. There are some exemptions in place with regards to certain sales, for example the sale of your main residence.

What should you do?

Landlords have faced so many changes over recent years; the restriction to the mortgage interest relief, additional Stamp Duty Land Tax and the new regime for non-UK residents means that the new payment regime is yet another cash-flow blow!

If you own property and you haven’t yet had tax advice to understand how the maze of change will impact you and understand the planning options that are available, then Ellacotts would be happy to help. Our tax team specialise in property taxation for landlords and are well placed to advise. Contact Jennie Brown on 01295 250401 or email jbrown@ellacotts.co.uk.

BUSINESS REVIEW – June 2019

Spotlight on issues affecting business

REFORMS PROMISE FIRMS GREATER PROTECTION

A consultation has been launched on government proposals to enhance the role of Companies House, increase the transparency of UK corporate entities and help combat economic crime.

The proposed new measures are part of a substantial package of reforms to Companies House, designed to tackle misuse of its register. A clear aim of the reforms is to increase the transparency of company ownership and management, while providing business owners with greater protection from fraud.

Specific proposals include: a robust identity check for company directors and people with significant control; a cap on the number of directorships individuals can hold; enhanced systems to protect personal information held on the register; and the establishment of effective links between records held by Companies House and other government bodies.

Companies House Chief Executive Louise Smyth commented: “This package of reforms represents a significant milestone for Companies House as they will enable us to play a greater part in tackling economic crime, protecting directors from identity theft and fraud, and improving the accuracy of the register.

One group that the government is particularly keen to hear from is company directors and officers of other corporate entities. The consultation period closes on 5 August 2019.

MARKETING LOW PRIORITY FOR MANY SMALL FIRMS

A new survey has revealed that almost six out of ten small businesses spend less than five hours per week on marketing, with stress being a major contributing factor restricting the amount of time business owners devote to marketing.

The report suggests the complexity of today’s small business environment is making marketing much more difficult. Indeed, with a bewildering range of marketing options available to businesses, it can be a stressful environment for owners who lack the resources to take advantage of these opportunities.

Conducted by OutboundEngine, the research found that a lack of finances (29%), time (22%) and marketing know-how (14%) were the factors most commonly cited by business owners as major hurdles in delivering an effective marketing strategy. While 58% of businesses spend under five hours per week on marketing according to the survey, 22% spend five to ten hours, and only 4% spend more than 20 hours each week.

However, the survey did highlight a clear correlation between spending more time on marketing and achieving business growth: more than 79% of respondents, who spent five to ten hours per week on marketing, experienced growth in 2018, compared to just 52% of those who spent less than five hours.

EMPLOYEES RANK HAPPINESS ABOVE PAY

A recent survey has revealed that over half of all UK employees are more concerned about being happy at work than the level of their salary.

The ‘Happiness Poll’ conducted by Wrike, surveyed 4,000 employees across the UK, France, Germany and the US, questioning respondents on issues relating to culture, pay and collaboration. It sought to identify what makes people happy at work and how that impacts on their productivity.

In the UK specifically, the findings suggest that levels of happiness are generally relatively high, although it was found that ‘doing meaningful work’ and feeling connected to a purpose was the most critical factor in terms of employee happiness, ranking even higher than pay. In addition, more than half of all UK respondents said they had taken a pay cut in order to accept a job that made them happier.

The research also corroborated other studies that have found a strong link between happiness and productivity, with this particular survey suggesting that 91% of happy employees felt they were ‘very productive’ at work. These findings therefore stress the need for employers to create a happy working environment if their workforce is to be truly productive.

CRUNCH TIME FOR LATE PAYMENTS REFORM

The Federation of Small Businesses (FSB) has urged Theresa May to use her final days in office to push through the late payments reforms package unveiled in the 2019 Spring Statement.

Chancellor Philip Hammond announced the package of measures designed to crack down on the scourge of late payments when delivering his Spring Statement on 13 March. The proposals will make the audit committee of every large business responsible for its payment practices; require listed companies to report their payment performance in their annual report; and strengthen the Prompt Payment Code.

And FSB National Chairman Mike Cherry is now calling on the Prime Minister to ensure her Government delivers on the promises made to the small business community, and to do so in June. Mr Cherry commented:

As Theresa May’s time in office draws to a close, we are now at crunch time for the promised late payments package we have worked hard with the government to secure. We are fast running out of time for the outgoing administration to secure this as their lasting and transformational small business legacy. We cannot afford to have these crucial reforms lost at the last fence, as attention turns to the leadership contest, a new administration and the upcoming Brexit deadline.

HIGHER MINIMUM WAGE DEEMED AFFORDABLE

In its ninth annual report on low pay, think tank, the Resolution Foundation, has declared the National Minimum Wage ‘a 20-year policy success story’ and suggested the UK can afford ‘an even higher minimum wage’.

Following rate increases on 1 April 2019, the National Living Wage (NLW) for employees over the age of 25 rose to £8.21 per hour and for those aged 21 to 24 the rate increased to £7.70 per hour. The National Minimum Wage increased to £6.15 per hour for 18 to 20-year olds and to £4.35 per hour for employees aged 16 or 17. For apprentices, the minimum rate stands at £3.90 per hour.

The report highlights that since the introduction in 2016 of the higher NLW for over-25s, the percentage of employees in low pay (defined as those who are paid less than two-thirds of median hourly pay) has declined from 20.7% in 2015 to 17.1% in 2018. While this is clearly good news for employees, the think tank warns that the minimum wage is now approaching a crossroads and policy makers must decide ‘how fast to boost wages for the lowest earners while managing the inevitable risks to employment.’

RESIDENTIAL PROPERTY REVIEW MAY 2019

Our monthly residential market review provides background to recent developments in property markets, as well as to give an indication of how some key issues could impact in the future.

Calls for a compulsory ‘snagging retention’ on new builds

A recent survey by New Home Review has revealed that more than nine out of 10 new-build homes in the UK have defects and almost 40% of new builds fail to meet their original deadline.

Following on from this, the HomeOwners Alliance have launched a campaign aimed at clamping down on developers of new-build homes who leave buyers with an unacceptable list of ‘snags’ and defects, ranging from poor finishes and ineffective insulation, to dangerous structural and electrical problems.

The Homeowners Alliance campaign proposes introducing a snagging retention of at least 2.5%, whereby new-build homebuyers retain a percentage of the cost of their house, until all faults are fixed, only handing this over six months after moving into their new home.

Currently, snagging retentions are common practice for commercial clients but are not generally available to individual new home buyers.

Brexit delay sees an increase in property listings

According to the latest property supply index, there was a surge in owners listing their properties in the days after Brexit was delayed again, with listings up 0.8% in April, month on month.

Analysis by online estate agent, Housesimple, revealed that almost half (49%) of major UK towns and cities saw a rise in new properties coming onto the market in April compared to March.

The overall picture in London showed new listings down by 1.4% in April compared to March, but four in 10 boroughs actually saw supply levels rise, with the biggest rise occurring in Kensington and Chelsea, with listings up by 17.3%.

Regionally, the biggest month on month rise was in Stevenage at 69.4%, followed by a rise of 43.8% in Salford, while Chichester saw a rise of 33.8%.

Sam Mitchell, Housesimple Chief Executive Officer said: “This latest six month delay provides a wider window of opportunity for homeowners to market while interest rates remain competitive and attractive to buyers“.

Increase in average rents in the UK

Data from Landbay Rental Index shows the average rent paid for a property in the UK is now £1,218 per month, up by 0.96% in the 12 months to April 2019.

Excluding London, the average rent in the rest of the UK was £773 per month, with Scotland recording the highest annual growth at 1.78%; Edinburgh being Scotland’s rental hotspot with an annual increase of 5.44%.

John Goodall, CEO of Landbay said: “Landlords can rest assured that there is decent rental growth to be found across the UK, particularly if they look north of London“.

Stamp Duty receipts fall

Tax receipts from Stamp Duty on property sales fell by £1bn over the last tax year, to a total of £11.9bn according to latest figures from HMRC.

However, Capital Gains Tax, which is payable when buy-to-let homes are sold, rose to £9.2bn, up from £7.8bn a year earlier.

The decline in Stamp Duty has been blamed on a decline in buy-to-let purchases and a slowdown in the higher end of the property market, in addition to the majority of first-time buyers having been removed from the tax.

Retirement Matters

Homeowners approaching retirement face a number of challenges when considering their future and need to make their money work hard for them.

STAMP DUTY

The Adam Smith Institute believes that Stamp Duty Land Tax should be scrapped. Amongst their reasons is the view that the prospect of paying stamp duty on a smaller home acts as a disincentive to older people wishing to downsize. For example, stamp duty adds another £2,500 to the cost of buying a retirement property priced at £250,000; that is in addition to solicitor’s fees, surveys, valuations and removal costs. (Figures differ under Land and Buildings Transaction Tax in Scotland and Land Transaction Tax in Wales.)

RELEASING EQUITY

Those looking to raise cash to bolster retirement income are increasingly turning to equity release. It represents a way of accessing some of the value tied up in a property while avoiding the costs and upheaval of downsizing. Although there are set-up fees, most costs are delayed until you die or go into permanent residential care.

It’s important to remember that in most cases, equity release means that the loan you take out against the equity tied up in your property will increase over time as interest is rolled up. When you die, the property will be sold and the loan repaid. Although interest rates on equity release plans are higher than on a conventional mortgage, lower interest rates over the last few years have made equity release more attractive to many.

Remember to discuss equity release with your family as it will impact on the amount that they are likely to inherit.

INTEREST-ONLY MORTGAGES

Equity release is increasingly coming to the aid of those approaching retirement with an interest-only mortgage without the funds to pay back the capital on maturity and their retirement income insufficient to cover ongoing interest costs. Whilst they may not have paid off any capital, they may have built up equity, offering them a lifeline allowing them to stay in their home.

A mortgage is a loan secured against your home or property. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

Equity release may require a lifetime mortgage or home reversion plan. To understand the features and risks, ask for a personalised illustration.

THINGS TO CHECK WHEN BUYING A NEW HOME

 

 

Basic Sanity Checks

It’s long been said that people buy a home with their hearts rather than their heads. It’s not unusual for people to fall in love with a property when they’ve spent no more than 20 minutes looking round it.

However, it always pays to take a long cool look at a property and apply some basic sanity checks. Here are a few things you might want to think about, and some you may want to get a surveyor to check out, before you commit to buying it.

THINGS TO THINK ABOUT

  • What’s the area like?

  • Can you walk to shops or do you need to drive?

  • What local transport links are there?

  • If you need to travel to work, a good service can make all the difference.

  • Is parking adequate, is the road likely to be very noisy at certain times of the day?

  • Which way does the property face? It can make the difference between having a home that’s light and bright, or one that in the winter can be frustratingly dark.

  • Are the rooms big enough? Developers can often put small furniture in show homes to make the rooms look bigger.

  • Think about storage space, and important things like the number and location of power sockets, are they sufficient for your needs?

GETTING A SURVEY DONE

A surveyor can report on important things that can be costly to put right, including structural problems, the state of the roof, signs of damp, condensation, and the quality of the window frames. You might also want to arrange to have the central heating system, pipework and radiators checked over, to ensure you don’t move in and find that you can’t heat the house and don’t have any hot water.

 

IMPROVE OR MOVE?

New evidence suggests that, in England and Wales, many more of us are putting down roots and choosing to stay in our current homes for longer.

It used to be that homeowners moved four times after their first purchase but now it is closer to two. Research1 carried out by Queen’s University Belfast points to a major cultural change, and highlights that at least a million fewer people moved between 2001 and 2011 compared with 1971 to 1981.

RENOVATION WORKS

This trend is borne out by recent research from insurer Hiscox2. They have identified a five-fold increase in the number of homeowners who have chosen to renovate their existing home in the last five years. This choice is likely to be influenced by a range of factors such as the continued rise in house prices in some regions, predicted rises in interest rates, additional costs such as stamp duty, a lack of suitable property on the market, tighter mortgage lending criteria and economic uncertainty around Brexit. Additionally, in some parts of the country property prices have hardly moved, meaning that families are held back because they have made little or no profit on their existing home.

In 2013, the research2 showed that just 3% of homeowners chose to improve as an alternative to moving, but five years later, this figure has risen to 15%. Local council figures show that requests for planning permission have risen by 29% in the last ten years.

OUTWARDS AND DOWNWARDS

Increasingly homeowners are looking to adapt their property to meet their changing needs, with an extra bedroom high on the agenda of many families. Loft extensions head the list of alterations and digging out basements to create extra accommodation is becoming increasingly popular, especially in London.

1Queen’s University Belfast, Fewer people moved house in the ’00s than the ’70s, 2018
2Hiscox, Renovations and Extensions Report, 2018

 

NEW BUILD OR OLDER PROPERTY – HOW TO CHOOSE

Before you start house hunting in earnest, you need to decide what style of property will best suit your lifestyle. Do you opt for an older pre-loved home, or jump at the chance to be the first owner of a brand-new property?

PERIOD CHARM

One of the major appeals of an older property can be the space they offer growing families. Average room sizes have shrunk over the years, so too has the size of gardens. In contrast with new builds, older homes often have spacious rooms, front and back gardens, period features and thicker walls too. They can have the advantage of being part of a long-established community and be nearer to local amenities and schools.

The downsides can include higher maintenance costs and the need to update things like heating systems and improve insulation. Getting a survey done before you buy is important and will highlight any repairs that might be needed.

NEW BUILD BENEFITS

Many people enjoy the thought of being the first owners of a home. It presents them with a blank canvas that they can personalise to their own taste. New homes are designed to be energy-efficient and come with energy-saving features like double glazing. They offer modern bathrooms and kitchens that generally come complete with a range of built-in appliances. New-build properties normally benefit from a 10-year protection, under which buyers get a two-year builder warranty to cover eligible faults and a further eight-year insurance to cover certain major defects. The downsides for some can be that the properties may all look very similar and come with the same internal layout. New estates don’t always have easy access to local facilities.

RESIDENTIAL PROPERTY REVIEW April 2019

Our monthly residential market review provides background to recent developments in property markets, as well as to give an indication of how some key issues could impact in the future.

‘Last-time buyer’ numbers increase in home purchases

Whilst first-time buyers make up just over 50% of residential home purchases currently, a further 30% of purchases, accounting for approximately 200,000 homes, are being made by buyers aged 55 or older.

This research, conducted by the Intermediary Mortgage Lenders Association (IMLA), states that of this group, many are cash buyers, using the large equity reserve in previously owned properties to downsize to their ideal last home and retain the excess cash; 63% of these older homeowners own their properties outright.

The IMLA went on to add the caveat, that whilst only 2.5% of those eight million older homeowners actually move each year, it predicts that this small cohort will grow exponentially faster than any previous generations over the next 10-20 years.

The International Monetary Fund offers a warning

The world’s financial watchdog, the International Monetary Fund (IMF), based in Washington and headed by the previous Finance Minister of France, and now Managing Director and Chairwoman, Christine Largarde, has fired a warning over the danger of overseas buyers disrupting domestic property markets.

The IMF has stated that house price booms are a consistent cause of recessions and countries, including the UK, should take note and make pre-emptive steps to ensure that this process does not repeat itself. In an effort to prevent a housing bubble destabilising the economy, the IMF suggest that Britain should contemplate imposing stricter mortgage limits and deterrents against overseas buyers of UK property.

They warned the UK is a market: “where foreign buyers have played a role.” The IMF also stated that: “The most recent data seem to point to an increase in downside risks to house prices over the next one to three years in some countries.

Lifestyle aspirations drive new home development design

In addition to adapting to trends in the property world, new housing developments are increasingly having to adapt to changes in wider society. These changes are having an impact on the communal amenities provided and outdoor space.

New home developments are now frequently design-driven by the demands of buyers looking for a ‘lifestyle’ that includes innovative amenities such as gyms and fitness centres, communal landscaped green spaces and community facilities, such as meeting rooms.

Given that many more people have flexible working patterns and may work from home, much more time is now spent by working families in the residential home and their desires are now being reflected in the initial overall design of mid and high end new-build developments.

Some new developments are offering innovative ‘extras’ such as individual indoor secure bicycle storage facilities, allowing homeowners to easily jump on their bike to commute to the station or office, or just to spend their leisure time cycling around the area.

FIRST-TIME BUYERS KEEPING THE MARKET BUOYANT

The recent slowdown in the market has been good news for those who want to get into the housing market and make that all-important first purchase.

Whilst the number of current owners moving home has come to a virtual standstill, due in part to the uncertainties surrounding Brexit, the number of first-timers has increased. Analysis by Lloyds Bank2 shows that 372,100 first-time buyers entered the market in 2018, up by 3% on the figure for 2017.

STAMP DUTY STIMULUS

Changes in Stamp Duty provided much-needed help. First-time buyers in England and Northern Ireland now pay no Stamp Duty on properties worth up to £300,000. This means that they save up to £5,000. For properties costing up to £500,000 they pay no Stamp Duty on the first £300,000 but will pay duty on the remaining £200,000. (If they buy a property worth over £500,000, then they pay the standard rate and won’t qualify for first-time buyer’s relief). In Scotland, first-time buyers enjoy Land and Buildings Transaction Tax relief that saves them up to £600, whilst in Wales they get no special Land Transaction Tax concessions.

As of October 2018, first-time buyers under Shared Ownership schemes can now claim First-Time Buyer’s Stamp Duty relief on homes worth up to £500,000. This change applies to homes purchased on or after 22 November 2017. Those purchasers who chose to pay Stamp Duty in stages and were previously not eligible for the relief can now claim this tax back.

TIME TO MAKE YOUR MOVE?

As well as being able to take advantage of what has become a buyer’s market, first-time buyers can also benefit from historically-low interest rates on mortgages. The mortgage market remains very competitive and lenders are currently offering a range of attractive deals specifically designed to help young people get on the housing ladder.

In the current market conditions, it’s worth checking out recent sold prices in the area in which you’re looking to buy, as you may be able to secure a property with an offer lower than the asking price, especially if the owners are keen to move as soon as possible.

A mortgage is a loan secured against your home or property. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

2Lloyds, 2019

It is important to take professional advice before making any decision relating to your personal finances.

Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK. We cannot assume legal liability for any errors or omissions it might contain.

Levels and bases of, and reliefs from, taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. No part of this document may be reproduced in any manner without prior permission.

Information is based on our understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from taxation are subject to change.

A mortgage is a loan secured against your home or property. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

Tax treatment is based on individual circumstances and may be subject to change in the future.

RESIDENTIAL PROPERTY REVIEW – March 2019

Our monthly residential market review is intended to provide background to recent developments in property markets, as well as to give an indication of how some key issues could impact in the future.

Average residential sales times longer

Recent research from property portal, Rightmove, indicates that across the UK, the average time taken from when a property is first listed, until it is marked as under offer, has increased from 72 days in January 2018 to 77 days currently.

The data also shows that Runcorn, in Cheshire, has the fastest moving housing market outside of London. Runcorn has an average asking price of £132,653 and has seen a reduction in selling time from 69 days in 2018 to just 48 days currently, 29 days quicker than the national average. This appears to have largely been driven by the opening of the Mersey Gateway Bridge, alleviating major traffic problems, to allow a journey time of 20 minutes by car, from Runcorn to Liverpool City Centre.

In Scotland, homes are selling quickest in Livingston, where on average it takes just 35 days for properties to get snapped up. Redditch in the West Midlands takes top spot as the fastest selling market in England, with properties in the Worcestershire town selling in 45 days, on average.

Targets may not be met despite more homes being built

A recent survey of more than 400 housebuilding companies in England, by property and construction consultancy McBains, reveals that 57% of respondents reported increasing the rate at which they built new homes during 2018 and are also predicting a further rise over the next 12 months.

However, less than half of those surveyed (48%) think that the Government target of building 300,000 homes a year, on average, by the mid-2020s is achievable, with worries over land availability, slow planning permission and skills shortages being cited as barriers to prevent them building more homes.

Of the homes to be built over the next 12 months, house builders expect 22% of these new homes to be classed as affordable homes for rent or sale. Clive Docwra, Managing Director of McBains, commented: “For those people struggling to get a foot on the property ladder, the finding that only arou nd one in five of new homes to be built over the next year will fal l into the affordable category will be disappointing.”

Uncertainty continues

The Royal Institute of Chartered Surveyors (RICS) February 2019 UK Residential Survey, indicated that the residential property market continues to struggle for momentum. The survey posed an additional question this time, aimed at identifying the most significant factor holding back activity, and in response to this, 77% of respondents cited Brexit uncertainty as the biggest challenge facing the housing market at present. The survey also indicated that 71% felt it was impacting both buyers and sellers, while only 8% were of the view that Brexit was not having an effect on either.

The Chancellor delivered his Spring Statement on 13 March and although little was expected in terms of new policy measures affecting the built environment, many policies remain dependent on the outcome of the Brexit debate, which a RICS press release expressed as ‘frustrating given how much parliamentary time has been diverted to it at the expense of pressing domestic issues such as the housing crisis, construction skills shortage and infrastructure deficit.’

It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from, taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. No part of this document may be reproduced in any manner without prior permission.