With the general election fast approaching and the major parties having now launched their manifestos, there are some key fiscal policies highlighted by each of the parties that will impact property and how it is taxed.
Below we outline some of these key tax changes that will impact property.
The main headline of note is that all three major parties have indicated that they will seek to further tax offshore investors in UK property either with a SDLT surcharge of up to 3% (Conservative) or a 20% offshore property levy on top of SDLT for foreign companies and trust (Labour), or a surcharge for overseas resident purchasing second home (Liberal Democrats).
The Liberal Democrats have also proposed that SDLT should be based on the energy rating of the property and would allow local authorities to increase council tax up to 500% for second homes, whilst Labour would allow Councils to tax empty dwellings and second homes used as holiday homes up to 200% of the current council tax. When running for leader of the Conservative party, Boris Johnson had suggested reforming and lowering the current level of SDLT, which many particularly within the high end residential market have been requesting in order to reduce the transactional friction at this end of the market. The Conservative election manifesto, however does not include such a proposal.
In terms of business rates, the Conservatives have indicated that there should be a fundamental review of the system with a reduction in rates in certain sectors, whilst Labour has stated that it will consider moving to a land value tax payable by landlords rather than tenants. The latter option being advocated by the Liberal Democrats who would look to scrap the current business rate regime and replacing this with the ‘Commercial Landowner Levy’, taxing only the land value of a commercial site regardless of whether the land or buildings above are occupied and shift the tax burden onto landowners.
In relation to direct tax rates the Conservatives have already confirmed that the proposed reduction to 17% for corporation tax will now not take place, therefore corporation tax will remain at 19%. They have also committed to 'a triple lock' not to raise National Insurance, VAT or income tax. Labour has indicated that they would raise corporation tax rates to 21% (small corporates) and 26% for other companies and that income tax would be raised to 45% over £80,000 and 50% over £125,000.
Importantly for property investors, Labour have also indicated that they would look to tax capital gains at the same rate as income tax, remove the separate annual exemption and have also stated that they will remove the 'trading exemption' and remove the requirements that a non-resident owns more than 25% interest in a property interest for non-resident capital gains tax on UK property to bite.
The Liberal Democrats have also stated that they would look to tax both capital gains and income at the same rate with one single annual allowance and would seek to put corporation tax up to 20%.
The Conservatives have suggested that they will review Entrepreneur’s Relief, a relief often used by Property developers, whilst Labour has indicated that it would seek to abolish this relief whilst also undertaking a far wider view of tax reliefs with the intention of removing a fair number of the reliefs currently available.
Finally, with the property industry increasingly looking at new methodologies and technology to deliver house needs and deliver returns, it is worth noting that the Conservatives would increase the current rate of R&D tax credits to 13%, whilst Labour would look to phase out R&D tax credits for large corporations over the next Parliament.
Based on the above, whilst the outcome of the election is far from certain, the way we tax property is likely to be subject to changes no matter what the outcome is.
If you would like more information on how these changes may affect you, or updates on further developments, please contact Caroline Fleet.