Property Blog Series: Episode 1 – Considering purchasing a rental property?

You may be thinking about purchasing a buy to let property and have already considered the following:

  • Local market
  • Location
  • Finance arrangements
  • Tenant targets
  • Rental yield
  • Capital growth
  • Insurance (building and landlord)
  • Legal fees

However, have you considered the following tax consequences of a buy to let property?

Stamp Duty Land Tax (SDLT) in England and Northern Ireland

SDLT is due on all property purchases at the standard rates shown below.  However in April 2016 new rules were introduced meaning landlords pay an extra three percentage of SDLT on each band when they purchase a buy-to-let property.  

House PriceStandard RateBuy to Let / Second Home Rate
Up to £125,0000%3%
£125,001 – £250,0002%5%
£250,001 – £925,0005%8%
£925,001 – £1.5m10%13%
Over £1.5m12%15%

The additional SDLT rates can make a substantial difference to the standard rates, particularly if the property purchase price is high. 

For example, should you purchase a £200,000 buy to let property the total Stamp Duty payable would total £7,500, this is broken down as follows: 

Up to £125,0003%£3,750
£125,001 to £200,0005%£3,750
Total Stamp Duty Due£7,500

In addition, married couples or civil partners are seen as one unit by HMRC for SDLT.  Therefore if a husband owns a property and his wife buys a property, the additional rates for a second property would apply even though they legally own the properties separately.

SDLT is not due in Scotland and Wales, an equivalent tax is due in those countries.  Land and Buildings Transaction Tax (LBTT) is due on property purchases in Scotland and Land Transaction Tax (LTT) in Wales.  You can find the rates on the relevant government websites.

The deadline for reporting and paying the SDLT on a purchase of a property in England or Northern Ireland is now 14 calendar days. If this deadline be missed – penalties will apply. The period for paying LBTT on properties in Scotland, or LTT for purchases in Wales is 30 calendar days. 

Value Added Tax (VAT)

VAT is not due on residential properties however if you were to buy a commercial property you may be liable to 20% VAT on the purchase price of the commercial property.

Expert advice should be sought if you are considering buying a commercial property. We have a specialist team at MHA Tait Walker who can assist you with any queries you have.

Personal Requirements

An area commonly overlooked, but one of significant importance, is your personal requirements once you’ve purchased a buy-to-let property. 

In purchasing a second property, and receiving rental income, you’ll meet HMRC’s guidance on who needs to complete a tax return. The only exception to this rule is if the rental income you receive in the year is less than £1,000. 

Registering for Self-Assessment 

You will need to register for self-assessment by 5 October following the end of the tax year you started receiving rental income e.g. 5 October 2019 for a property first rented during the tax year 6 April 2018 to 5 April 2019.  By registering you’re making HMRC aware you need to complete a tax return. If this is done incorrectly you may be required to complete a tax return for an incorrect year. 

Once HMRC have processed your application you will be issued with a Unique Taxpayer Reference, otherwise known as a ‘UTR’. This is a 10-digit reference you need to complete your tax return. 

What are the Self-Assessment deadlines? 

You submit tax returns for tax years, not calendar years, and you do this in arrears. 

For example, for the 2019/20 tax year, running 6 April 2019 to 5 April 2020, you would: 

  • need to register for Self-Assessment by 5 October 2020 if you’ve never submitted a return before 
  • submit your return by midnight 31 October 2020 if filing a paper tax return 
  • submit your return by midnight 31 January 2021 if filing online 
  • pay the tax you owe by midnight 31 January 2021. Sometimes you will be required to make interim payments on account towards your future liabilities.

Failing to meet one or more of these deadlines, you will be liable to HMRC’s strict penalty charges. 

How can we help?

Here at MHA Tait Walker we can help you along the process of purchasing a property and your tax requirements, please contact Ryan Keltie on 0191 285 0321 or email ryan.keltie@taitwalker.co.uk

In our next blog of the property series we will discuss how to account for rental income and expenditure and what expenditure is allowable for tax purposes. 

Falling out over Finances, Episode 5: Commercial Clashes

In our final episode in this series…

We discuss how lack of communication during trading can result in catastrophic financial consequences for businesses. We also look at the reasons behind an increasing number of entities now seeking alternative dispute resolution methods.

Forensic Services have dealt with multiple dispute cases where parties have irreconcilable differences. Often they have taken steps to actively prevent disclosure of relevant and timely information to the parties involved. This blocks any potential settlement purely from an emotional desire to cause the other party frustration and cost.

Consequences

The economic climate means all businesses control costs tightly. Any escalation in a dispute or threat of non-payment from a customer can have a significant effect on the continued operation of an entity. To ignore the reality and potentially serious nature of a dispute or loss may have severe financial consequences. However, many bury their head in the sand and never fully recover to their previous financial position.

Many SMEs and owner managed, family businesses do not have the resources or expertise to immediately assess the full extent of a loss. They may ultimately fail if they do not take proper advice. A delay in action may prolong the stress of the dispute and possibly introduce further complications.

We have dealt with cases where businesses have rapidly declined as a result of losses suffered. Some shareholders will personally introduce large cash sums in order to keep trading, ensuring staff wages are still paid when cash flow may be poor. Forensic Experts specialise in calculating losses to owner managed businesses. This includes indirect losses sustained as a result of trading disputes. They are not immediately obvious but may significantly impact on business growth, profitability, or opportunities lost.

Clashes between company and customer, supplier or subcontractor, are prevalent in the construction industry. Losses in contract disputes often involve sums in the hundreds of thousands. However, larger entities often have additional resources to enable them to mitigate such losses.

Resolution Methods

Forensic Services have dealt with multiple contract dispute cases in construction and manufacturing, and Tait Walker’s specialist Property and Construction Group is experienced in advising on all aspects of commercial trading affecting businesses operating in these sectors.

The construction industry favours alternative dispute resolution methods, including mediation or arbitration. This achieves a swift settlement to ease cashflow, avoid Court costs, minimise business disruption and enable contract work to continue on major projects in the public or private sector.

The Court looks unfavourably on parties who do not attempt alternative dispute resolution. It is in all interests to attempt mediation prior to incurring the significant cost of Court proceedings. The involvement of experts at an early stage is critical to achieve an equitable settlement and preserve continuity of trading. Quantifying the loss at an early stage can assist in focusing the settlement negotiations. This is ultimately the best result for all parties.

Falling out over Finances, Summary

Our Forensic blog ‘Falling out over Finances’ is a five part blog series. It is aimed at anyone who has been involved in a dispute that has impacted their financial situation.

We have looked at different types of disputes as well as the possible outcomes and methods of resolution. We have also discussed the ‘red flags’ that may prevent you and those around you from falling out over finances. In our experience, financial disagreements affect individuals through to the largest companies. If those involved take professional advice quickly, the dispute will likely not escalate.

If you have missed our five part blog series ‘Falling out over Finances’, all episodes are available on our website:

Introducing Falling out over Finances

1: Shareholder Strife

2: Partnership Problems

3: Inheritance Issues

4: Marital Matters

Contact us

If you have been affected by any of the issues discussed, or would like further information, please contact our Forensic Services Team on 0191 285 1321 for a no obligation discussion.

MHA Real Estate Matters – Issue 9

MHA Real Estate Matters, Issue 9, is available now. We have worked with MHA to provide a national outlook on the issues facing the construction and real estate sectors.

Issue 9 contains articles on the following:

  • Land Transfer Tax replacing Stamp Duty Land Tax in Wales
  • Zero Rate VAT within construction projects
  • A summary of UK construction sector corporate finance deals, alternative funding and an update on the residential house price index

Key Stats

Some key stats are outlined in the publication:

MHA Real Estate Matters – Issue 9

To view the full publication, please click on the image below:

Property Land Tax Rates – Different rules for different locations

Following the devolution of certain taxes to government of Scotland and Wales, businesses need to be aware that certain property land tax rates are different in Scotland and Wales to England, notably what used to be called Stamp Duty.

Property Land Tax in England and Northern Ireland is now known as Stamp Duty Land Tax (SDLT). In Wales it is Land Transaction Tax (LTT) and in Scotland it is Land and Buildings Transactions Tax (LBTT). Although broadly similar, the three different Land Taxes have different rates in each location (see tables below).

With all three taxes, HMRC must receive a filed return within 30 days of the ‘effective’ date of the transaction, even if no tax is due. This is usually the date the transfer is completed. The payment deadline is the same as the return filing deadline.

However, the deadline for filing a return in England (Stamp Duty Land Tax) is changing from April 2019 from 30 to 15 days.

England and Northern Ireland – SDLT

Scotland – LBTT

There are specific circumstances in which Scotland requires a submitted tax return every three years for leases signed after April 2015, including:

  • Every three years from the effective date of the lease,
  • On assignation; and
  • On termination.

Wales – LTT

In summary, businesses purchasing new property need to take into consideration the different tax rates across jurisdictions and filing requirements. This is to ensure that the tax costs and payment dates do not come as an unwelcome surprise.

Contact us

To discuss further, please contact our Tax specialists on 0191 285 0321.

MHA’s Real Estate Matters Issue 8 is now available

MHA Real Estate Matters Issue 8 is now available. It is part of MHA’s Construction & Real Estate series.

Find out how the 2018 Spring Statement announcement will affect the sector. It includes the following:

  • Financial support that will be provided to tackle supply and skills shortages
  • Affordable housebuilding plans
  • Transport announcements

Real Estate Matters Issue 8

Meet Tait Walker’s Property and Construction team.