HMRC confirms new buy-to-let tax wording

The Law Society has welcomed reassurances that buy-to-let landlords will not be adversely affected by what it has called amendments slipped in to the Finance Bill.

However, concerns have not gone away.

The Law Society has called for the wording of the amendments to reflect this, and the National Landlords Association has said it will continue to watch the situation carefully. Another body has warned that disposals of property could be treated for tax purposes as trading, and therefore attract the higher tax rates “in a broad range of circumstances”.

Other concerns continue amid concerns that government bodies do not agree on a clear distinction between property investment and property trading.

The NLA sought assurances from HMRC official Mark Carnduff, who advised it that:

“HMRC considers that generally property investors that buy properties to let out to generate property income and some years later sell the properties will be subject to capital gains on their disposals rather than being charged to income on the disposal.

The exception, that is the reason why it says generally above, is that:

if the investor decides to undertake development prior to sale the profit on the developed part, from the date the decision to develop for sale, will be trading income. But that would be trading income without the new legislation. Or
if the investor sells the land in a contract with a ‘slice of the action’ clause (allowing them to benefit from changes in the future development of the property) the slice of the action profit will be taxed under the new legislation – but it was previously taxed under the transactions in land legislation.”
The NLA said it will continue to monitor the situation closely and ensure the Government’s intention is made clear at both the Report stage next week and in the guidance.

A spokesperson for the Law Society said: “We welcome HM Treasury’s further assurances that changes to the Finance Bill were not intended to target buy-to-let investors.

“We would encourage HM Treasury to clarify this point in the Bill, to ensure that the legislation is in line with the Government’s stated policy intention.”

One of the more cynical critics, buy-to-let lender Commercial Trust, has remained clearly unhappy, saying that the current legislation shows a broad range of circumstances in which profits would be treated as income tax rather than Capital Gains Tax.

It said: “One of the problems that has long plagued the buy-to-let sector is the ability of government bodies to agree on a clear distinction between investment and trading and apply it consistently. Patchwork legislation introduced without proper consultation is not going to help.”


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Written by: Houseladder