The 2024 Spring Budget on 6 March held some major changes that will affect all landlords in general and owners of Furnished Holiday Lets in particular. We asked Pavandeep Mandir of UK Landlord Tax what the budget means for landlords.
The changes outlined below are from the information currently available from the Government whilst we await the fine detail and actual legislation which is yet to be released. As the detail of legislation becomes known we will provide further updates.
1. Tax is now calculated based on average value of dwellings
Multiple Dwellings Relief (MDR) is a Stamp Duty Land Tax (SDLT) relief available to any purchaser buying two or more dwellings in a single transaction, or linked transactions, and allows the purchaser to calculate the tax based on the average value of the dwellings purchased as opposed to their aggregate value.
MDR will be abolished for transactions from 1 June 2024.
2. New residential lease purchases can now claim First-time Buyers’ Relief
Previously, individuals buying a new residential lease via a nominee or bare trust were unable to claim Stamp Duty Land Tax First-time Buyers’ Relief on their purchase because special rules apply to those arrangements which treat the nominee or the trustee as the purchaser, and not the individual. This meant that victims of domestic abuse who wished to use such arrangements to prevent former partners from finding their new address were unable to claim relief.
From 6 March 2024, the conditions for claiming First-time Buyers’ Relief have been amended so that individuals using these types of arrangements are able to claim relief, bringing them in line with purchasers of residential freeholds and pre-existing leases using similar arrangements.
3. Changes to guidance for Furnished Holiday Lettings
The Furnished Holiday Lettings (FHL) tax regime will be abolished from April 2025. The effect of abolishing the rules will be that short-term furnished holiday lets and longer-term residential lets are treated the same for tax purposes and individuals will no longer need to report the two income streams separately.
Draft legislation, which is yet to be published, will include the specific measures that will apply. UK Landlord tax is keeping a close eye on this as many questions remain unanswered.
From 6 April 2025, interest for businesses operated by individuals will cease to be a deduction and relief will instead be given as a 20% tax credit from the individual’s tax liability.
For higher rate taxpayers, this will mean a reduction in tax relief for interest to the 20% rate. As trading assets, capital gains on the disposal of furnished holiday letting assets by individuals currently may qualify for business asset disposal relief: where they qualify, gains up to the lifetime limit of £1m would be taxed at a rate of 10%.
As investment assets, from 6 April 2025 such gains will be subject to the Capital gains tax (CGT) tax rate of 18% for profits within the standard rate band or 24% for profits within the higher rate band.
Gains on the disposal of a furnished holiday let would currently qualify for CGT rollover relief, if a replacement qualifying asset is purchased, a claim can be made to deduct the capital gain from the tax base cost of the new asset, thereby deferring the tax point of the gain. Such relief is only available for investment properties in cases of compulsory purchase. Expenditure on qualifying assets for a furnished holiday letting business are currently eligible for capital allowances.
As a letting of residential investment property, such relief will be withdrawn from 6 April 2025 although it is likely that such businesses may instead be able to claim a deduction from profits for the cost of replacing domestic items.
Tax relief for pension contributions by individuals is currently limited to contributions of the higher of £3,600 or 100% of net relevant earnings.
Currently, profits from furnished holiday lettings are treated as relevant earnings. From 6 April 2025, therefore, those individuals who rely on profits of a furnished holiday lettings business to support obtaining tax relief for their pension contributions may need to seek appropriate advice.
Many questions remain unanswered. For example, if the FHL business is to cease on April 2025 what will this mean for capital allowances claims made in previous years? Will owners need to value the closing value of the fixtures & fittings, plant and machinery and face a balancing charge?
Draft legislation, which is yet to be published, will include the specific measures that will apply. We are keeping a close eye on this as many questions remain unanswered and will release further information in due course.
4. An increased VAT registration threshold
The government will increase the VAT registration threshold from £85,000 to £90,000 and the deregistration threshold from £83,000 to £88,000 from 1 April 2024.
The government has stated that these new thresholds will be frozen but has not stated for how long.
5. Changes to Capital Gains Tax rates
The Capital Gains Tax rates on the sale of residential properties for higher rate taxpayers will change from 28% in 2023/24 to 24% in 2024/25. The 18% basic rate remains unchanged.
6. Remittance basis of taxation for non-UK domiciled individuals abolished
The current remittance basis of taxation for non-UK domiciled individuals will be abolished and replaced with a residence-based regime from 6 April 2025. Individuals who opt into the new regime will not pay UK tax on any foreign income and gains arising in their first four years of tax residence, providing that they have been non-tax resident for the last ten years. Individuals who have been tax resident in the UK for more than four years will pay UK tax on their foreign income and gains.
The government will also introduce the following transitional arrangements for existing non-UK domiciled individuals claiming the remittance basis:
- an option to rebase the value of capital assets to 5 April 2019
- a temporary 50% exemption for the taxation of foreign income for the first year of the new regime (2025/26)
- a two-year Temporary Repatriation Facility to bring previously accrued foreign income and gains into the UK at a tax rate of 12%.
7. Stamp Duty Land Tax - Acquisitions by registered social landlords and public bodies
The Stamp Duty Land Tax (SDLT) legislation includes an exemption for purchases of social housing by registered providers where the purchase has been at least partly funded by public subsidy. This legislation was out of date, meaning that sometimes such purchases were subject to SDLT, against the policy intention. This measure amends the out-of-date references and definitions relating to the exemption. The amendments will update the list of public subsidies to include public grants which have been permitted to be retained and recycled to qualify for the exemption.
The measure also removes public bodies from the SDLT 15% higher rate charge. These changes overall will reduce the tax burden on public bodies and providers of social housing ensuring that public money being spent is used to its maximum effect.
8. Increased high Income Child Benefit Charge
The government is increasing the income threshold at which High Income Child Benefit Charge starts to be charged from £50,000 to £60,000 from April 2024. The rate at which High Income Child Benefit Charge is charged will be halved from 1% of the Child Benefit payment for every additional £100 above the threshold to 1% for every £200.
This means that Child Benefit will not be withdrawn in full until individuals have ‘adjusted net income’ of £80,000 or more.
This will have an effect on landlords who are higher earners and receive Child Benefit, or if their partner receives it.
9. Reduction to National Insurance Contributions (NICs)
The Class 1 primary (employees) NICs is reducing from 10% to 8% from 6 April 2024.
There is also a reduction in the rate of Class 4 (self-employed) NICs from 8% to 6% from 6 April 2024.
As the detail of the Finance Bill becomes clear, we will update any relevant developments.
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