UK Budget 2021- UK Residential Property Investor Impact

Budget Provisions Announced:

1.Personal Allowances (for UK residents and non-resident UK citizens) for Income Tax is increased on 6 April 2021 to £12,570 and frozen until 5 April2026.

2.Basic rate (20%) band for income tax is increased to £37,700 (from £37,500)on 6 April 2021 and frozen until 5 April 2026.

3.Higher rate (40%) threshold increased to £50,270 (from £50,000) on 6 April2021 and frozen until 5 April 2026.

4.Additional rate (45%) remains on profits over £150,000.

5.Capital Gains Tax (“CGT”) annual exemption is increased to £12,570 (£6,150for trustees) on 6 April 2021 and frozen until 5 April 2026.

6.CGT rate remains at 28% (18% lower rate) for now but Tax Policy consultation to be released 23 March 2021 could suggest changes.

7.Inheritance Tax (“IHT”) Nil Rate Band of £325,000 and the residence nil rate band of £175,000 remain the same and are frozen until 5 April 2026.

8.IHT is payable on death on the net value of the property over and above the Nil Rate Band, at the rate of 40%, subject to a spouse exemption, if applicable.
a. There could be changes in the 23 March Tax Policy consultation.

9.Government to guarantee 95% first time buyer mortgages for property up to £600,000.

  1. Corporation Tax rate increased from 19% to 25% from 6 April 2023 for companies owning rental properties with net profits over £250,000 (see https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm60740)
    a.19% rate will still apply on profits up to £50,000 and tapered rate from profits between £50,001 to £249,999.
    b. Doesn’t apply to closely held investment holding companies;
    c. Company existing for the purposes of investing in land or interests inland and buildings where the land (or building) is let, is not a closely held investment holding company;
  2. Extension of Stamp Duty Land Tax (“SDLT”) Holiday to 30 June 2021 with tapered relief to 30 September 2021
  3. Non-UK resident buyer SDLT penalty charge of 2% comes into effect on 6 April 2021.

a. All non-UK resident buyers will pay a penalty 2% SDLT on top of whatever SDLT is chargeable on the purchase.

b. Applies to all non-UK resident Individuals, Trustees and Companies.

c. Definition of non-UK resident is not having lived in the UK for at 183 days in the 364 days prior to purchase; not same as Statutory Residence Test.

d. This also applies to UK companies controlled by non-UK resident shareholder.

e. See Part 4 Schedule 9A FA 2003:https://www.gov.uk/government/publications/new-rates-of-stamp-duty-land-tax-for-non-uk-residents-from-1-april-2021/new-rates-of-stamp-duty-land-tax-for-non-uk-residents-from-1-april-2021

SUMMARY:

Buyers of UK property on or before 30 June 2021 can still save up to £15,000 per property.

Properties purchased between 1 July and 30 September 2021 can save a maximum of £2,500 per property.

SDLT Rates revert back to normal from 1 October 2021.

Non-UK resident buyers can still benefit from these rates, but from 1 April 2021 have to pay an additional 2% penalty charge on top.

The old SDLT rates pre 8 July 2020 will revert for UK residents on 1 October 2021.

For a non-UK resident individual buying an additional property or a non-UK company, the saving if complete purchase by 31 March 2021 is up to £25,000 per property compared to rates on 1 October 2021.

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