Real estate market 2022 and the tax legislation to know

As we head into 2022, Tim Walford-Fitzgerald, partner at UK accounting firm HW Fisher, shares his expectations for the property market and the top 6 tax considerations you need to know.

6 property taxes to know:

1: HMRC cracked down on homeowners and capital gains tax payments

HMRC may become more aggressive with owners who have missed some of the rule changes in recent years. Now that the residential mortgage relief restriction is in full force, we would expect less tolerance for misrepresentation, especially in light of the losses some homeowners may incur due to recent defaults.

Capital gains tax for residential real estate transactions can now be paid within 60 days, following calls to double the 30-day payment deadline due to fines imposed on unsuspected homebuyers . We expect the recent extension of the disposal reporting deadline to result in greater enforcement against those who have failed to meet their reporting obligations.

2: Reminder for real estate developers, new taxes will come into force from April

From April 1, 2022, 4% will be charged on profits from residential property development activities in excess of £ 25million from accounting periods ending after March 31, 2022.

3: Watch for proposed changes to the Stamp Duty Property Tax (SDLT)

At the moment, if you buy the classic property from a store on the ground floor with an apartment above, you only pay SDLT’s commercial rates. HMRC proposes that the cost be allocated so that only the store benefits from the commercial rates, with the apartment suffering the higher residential rates. HMRC is currently consulting on these proposed changes and is considering changes to reduce the growing number of incorrect Multiple Housing Relief (MDR) applications. The exam is scheduled to end on February 22, 2022.

4: Reduced VAT rates are now over for seasonal rentals

Remember that the temporary reduced rate of VAT for deliveries of holiday accommodation has been reduced from 5% to 12.5% ​​on October 1, 2021. Even if a public holiday is taken after October 1, the 5% can still be applied if a tax point is created beforehand.

5: VAT conversion from commercial to residential – Understanding where the 5% rate applies on housing

There have been changes regarding the conversion of VAT from commercial to residential, and it is important to clearly understand where the 5% rate on dwellings applies. The reduced rate applies to:

– Transformation of a non-residential building into housing;
– Transformations involving a change in the number of dwellings inside the building, for example, the transformation of a house which creates additional dwellings or the transformation of collective dwellings into a single house
– The renovation of a residential property unoccupied for more than 2 years

However, there are conditions which include, for example, a planning condition which prevents the separate alienation of a dwelling. Such a condition would prevent the application of the 5%.

The 5% rate applies to charges such as:

– Work on the structure of buildings, including walls, roofs, floors, stairs, windows, doors, wiring and plumbing;
– The supply of equipment such as water, electricity, heating and drainage and the installation of fitted kitchen units, sanitary ware, central heating and lighting equipment.
– In addition, if the builder undertakes the work and purchases the materials on behalf of the owner, the 5% also applies to the materials.

The 5% rate does not apply to professional fees such as architects / surveyors etc.

6: Avoid VAT and tax traps in the development of student accommodation

There are VAT reliefs for student accommodation classified as relevant accommodation or residential. The former is preferred because it avoids having to monitor the use of the property for the 10 years following completion. If they are built as dwellings (individual studios or grouped apartments), the VAT exemption (zero rate) extends not only to main contractors but to services provided by subcontractors.

Careful structuring using an SPV1 / SPV2 structure can result in the recovery of VAT on professional services where VAT is charged at 20%. Any planning conditions that prevent the separate disposal of a studio / group of apartments within the development could significantly alter the above analysis and result in a cost of VAT over the benefits of the development.

Tim concludes: “The past year has been one of the busiest for the housing market in over a decade. According to Zoopla, estimates show there were 1.5 million sales in 2021, with the total value of homes changing hands rising to £ 473 billion, some £ 95 billion more than 2020. As a result, we expect HMRC to become more proactive in debt collection. property tax. As real estate transactions tend to be for high values, if there is a problem with VAT, it is usually a large sum. It is therefore very important that owners, developers and renovators are aware of the latest changes. “

Penny D. Jackson