Drilling down into the budget to explain the property matters
The 2015 Budget didn’t include a lot of new measures relevant to property, but there were one or two. Here is a selection of the points that caught my eye. More details are to be found in the Pre-Budget Report, which is available on line at https://www.gov.uk/government/publications/budget-2015-documents.
The “Help to Buy” ISA
This is in the Pre-Budget Report in the chapter headed “Fairness”. The thinking behind it is to address the low rates of interest that people saving for a house deposit can typically get these days. To encourage such saving, a special “Help to Buy” ISA will give a government bonus of 25% of the amount saved, up to £3,000. So if you save £12,000, the government bonus will make that £15,000.
The bonus is paid only when you use the ISA to put a deposit on a UK house costing up to £250,000 (£450,000 in London). It is for first-time buyers only, but it is on the basis of one ISA per person, so that a couple buying a house together can have two £3,000 bonuses.
The new ISA is to be available from participating banks and building societies from this autumn, and new accounts can be started any time within the following four years.
Capital Gains Tax for non-UK residents disposing of UK residential property
Another “fairness” initiative, this new tax rule affects non-resident individuals, trusts and companies selling UK residential property on or after 6 April 2015. Up to now non-residents have mostly been exempt from UK CGT altogether, but that is set to change. Only the gains from that date are taxable, so there may be some work here for property valuers, although valuations will be needed only when properties are sold.
It is conceivable that UK buyers might notice the effect of this new tax charge if the potential tax liability comes into the price negotiations with a non-UK seller. Because of the way the new rule is being brought in, the effect in early years is likely to be small, but it will grow as time goes on.
Capital Gains Tax: private residence relief (PRR) on properties located in other jurisdictions
A UK resident is liable for UK tax on all income and gains from anywhere in the world. Hence you would have to pay UK CGT on selling a second home overseas (though if there were tax to pay in the foreign country there should be some double tax relief to offset). Up to now, however, it has been possible to nominate a second home overseas as your “private residence” and thereby make the gain on sale exempt from UK tax, even if the time spent there was a relatively small part of the year.
The rules are now to be tightened up, so that you will need to live in the country where the house is for at least 90 days a year, or the overseas property can’t be called a private residence for CGT purposes.
Abolition of personal tax returns
Only a small mention appears in the Budget Report about the proposed abolition of the personal tax return. The idea is to enable tax payers to manage their tax via an on-line “digital tax account” rather than by filling in an annual tax return. The Government plans to start introducing digital tax accounts in early 2016, and then phase in the new system by 2020. It is an ambitious plan, involving HMRC collecting information on your taxable income direct from sources such as banks, employers and so on.
For the self-employed and those with buy-to-let properties, however, there will presumably still be a need to prepare accounts and file those figures with HMRC. So, if you are a property landlord, there will be some reduction in the work required to manage your tax but a big part of the process may well remain largely as it is now. Accountants won’t all be retiring just yet!