Following the Government's inaugural Tax Day, we have summarised the top five key takeaways for the property sector.
1. Business Rates Interim Report
For a headline review of the Government’s announcements as to its “fundamental review” of business rates more generally and the Business Rates Interim Report, which were both also published on Tax Day, please see our article here.
2. Business rates for second property owners
In its Tax Day press release, the Government announced that tax rules will be tightened to ensure that only holiday homes that are actually commercially let will qualify for business rates.
Currently, second property owners are able to make a declaration that their property will be let for 140 days in the next year and therefore qualify for payment of business rates rather than council tax. The reality being that most will pay no business rates (and no council tax) since the majority of such holiday lets have a rateable value which would mean that they qualify for small business rates relief.
Legislation will be passed to ensure that second property owners cannot reduce their tax liability on properties that are not genuine holiday letting businesses. It will not be sufficient for owners to state that a property is available to let, there is likely to be a requirement for affirmative steps to be taken to ensure that the property is in fact let.
The Government’s move to strengthen the self-catering accommodation criteria for business rates will seek to ensure that owners of second properties which are not actually used as holiday lets cannot simply bypass tax liabilities by simply making a declaration. The criteria for determining whether or not a second property should be valued for business rates will be altered and will be based on the number of days that the property was actually rented.
Details behind these headline proposals are not yet available however the Government has stated that more information will be “published shortly” in MHCLG’s response to the consultation into self-catering accommodation.
The Government announced that land and property VAT rules would be simplified with particular focus on VAT exemptions. A call for evidence was not published alongside the other consultations on Tax Day however the Government has stated that it will be published “shortly.” The call for evidence will “explore options to make the exemption simpler and clearer.”
The Government published a summary of responses to its July 2019 call for evidence on simplifying the VAT rules on partial exemption and the capital goods scheme (CGS).
Respondents to the call for evidence overwhelmingly reported that the current CGS system requires simplification. They also identified advantages and disadvantages associated with increasing the CGS threshold for land and property for businesses.
An increase to the CGS threshold was widely supported on the basis that it would reduce the administrative burden on businesses by reducing the number of qualifying assets falling under the scheme. In the shorter term, respondents suggested that the current threshold of £250,000 might be raised to a figure between £1M and £5M or by linking the increase to indexation or inflation. Support for regular reviews of the thresholds and future increases based on the economic life of assets was also evident.
Potential disadvantages were also highlighted, including the fact that taxpayers and HMRC may “lose out from future changes in usage and the VAT resulting, if they were not under the CGS mechanism.” Concerns were also voiced regarding the treatment of developments/refurbishments during any transition to the increased rate. Proposals to retain the current threshold or apply differing thresholds for alterations, extensions, annexes and refurbishments were roundly rejected on grounds of complexity.
Respondents suggested a number of additional improvements to the existing CGS mechanism including:
- a de minimis for CGS;
- improve guidance on the application of CGS special methods;
- guidance on the position of leases regarding CGS terminations;
- limiting the CGS to single capital purchases over £1 million; and
- a single VAT adjustment for CGS in year 10 of the intervals / two five yearly adjustments.
The Government has not made any particular announcement in light of the review of the call for evidence, most notably there is no indication that the CGS threshold will be raised.
5. Developer Tax
On 10 February 2021 the Government announced that a new tax on developers would be introduced in 2022 to help pay for the costs of cladding remediation. The most recent Tax Day announcement does not provide much by the way of further detail, however, the Treasury’s Command Paper states that a consultation on the new tax is expected to be published “in the coming months.”
Further insight into the costs of remedying defective cladding can be found in this post written by Angus Dawson and Mark Lawrence, partners in the construction team at Macfarlanes.