21 Oct 2022

Property Taxation – Everything You Need To Know

Statistics show that over 4m households were occupied by private renters in England in 2021 which shows that the rental market in the UK is very much alive and well.

Navigating property tax rules can be tricky and there have been several important changes to UK property taxation over the years. If you’re unsure about your obligations we’ve summarised some of the key points you need to be aware of below.

ATED – Don’t forget to revalue!
Brought into effect in 2013, ATED was initially designed to deter companies and similar entities from owning high-value UK residential property to minimise taxes such as stamp duty land tax (SDLT) by applying an annual charge. In its initial phase, ATED only applied to properties valued in excess of £2m but as the years have gone by, the valuation bandings have decreased significantly. At present, properties valued at more than £500,000 may be caught by the regime.

The ATED rules require that UK residential properties held by companies and similar entities are revalued every five years and the most recent revaluation date was 1st April 2022.

Whilst this revaluation requirement may not have previously been a significant concern to a lot of businesses, UK house prices increased by 10.8% during the year to December 2021 so this particular valuation date could trigger an ATED filing requirement for companies previously outside of the regime or could shift properties already subject to the regime into higher ATED valuation bands.

Landlords can often obtain relief from ATED if their properties are commercially let but this relief must be claimed. To find out more about a company’s ATED obligations, take a look at our summary of the valuation requirements here.

Residential Property Sales – 60 Day Reporting
Since 6th April 2020, individuals, trustees, and personal representatives who realise a taxable capital gain from the sale, letting or other disposal (such as a gift) of a residential property must report this to HMRC and pay within 60 days of completion (30 days prior to October 2021).

Rental properties, holiday homes and properties only partially occupied during ownership are typically caught by the regime and gains must be reported using HMRC’s digital service.

It’s important to note here that the submission of a 60 day return doesn’t necessarily remove any filing obligations under the self-assessment regime – a disclosure of the disposal may still be required although credit can be obtained for tax already paid.

To find out more about 60 day reporting, take a look at our summary of the key tax areas of property investment here.

Non-Resident Property Owners – Know Your Obligations
Non-resident individuals letting out a property in the UK need to pay UK income tax on the rental income received. The tenant of the property will ordinarily be required to withhold basic rate tax from rent paid to a non-resident landlord although this obligation can fall onto an agent if the property is managed.

In certain circumstances the landlord can make an application to HMRC to receive their rental income gross from the tenant/agent.

Not only are non-resident landlords subject to UK tax on their rental income but they may also need to pay capital gains tax on the sale of their property with filings potentially due under the 60 day reporting regime.

It doesn’t just stop there; non-UK resident companies are also within the UK tax net. With effect from 6th April 2020 non-resident entities receiving income from UK property are required to pay corporation tax and, in most circumstances, must file annual accounts and UK corporation tax returns.

Making Tax Digital – It’s Coming…
From April 2024 individual landlords with annual gross income of £10,000 or more will be required to make quarterly reports to HMRC under Making Tax Digital (MTD). Landlords will already be used to making an annual self-assessment submission but under the MTD regime they will be required to make an additional five submissions every year, reporting income and expenditure details using a digital platform.

This is arguably the biggest change to individual tax reporting since the introduction of self-assessment in 2000 and the effect on landlords is expected to be substantial.

We have produced a downloadable booklet covering the main points of this article - click here to see it.

Stephanie Hurst