Government tax gurus want landlords to tell them which aspects of property tax rules are too complicated – and to suggest how to improve the law.
The Office of Tax Simplification (OTS) is collecting evidence about how to make property tax easier.
The call for evidence is open until June 5, 2022, inviting property professionals to complete an online survey.
The OTS is working on a study to identify the problems residential landlords, companies and small businesses face when preparing their accounts and tax returns.
HM Revenue & Customs data shows around 2.9 million individual landlords and 32,000 partnerships filed property tax returns in 2018-19, the latest year with available figures.
Holiday let tax confusion
Most landlords pay income tax on their rental profits after deducting business expenses and mortgage interest relief. Capital gains tax (CGT) is due on any gain in value since ownership started when disposing of property.
Property businesses trading as companies pay corporation tax on rental profits and property disposals instead of income tax and CGT.
Some landlords with furnished holiday lets in the UK or European Economic Area pay income tax on rental profits and CGT on property disposals. However, these landlords benefit from tax breaks and reliefs unavailable to other landlords.
Confusion often arises if a landlord personally owns rental property, trades through a company and also lets holiday homes at home and abroad as each class of property is taxed differently.
“The review will consider the current regimes for the taxation of residential property held by individuals, partnerships and micro-companies, and develop recommendations for simplification and ways of addressing distortions. The primary focus of the review will be on income received from property,” said the OTS.
What the OTS needs to know
The OTS is keen to consider views about several main tax factors, including:
- How taxing property income fits into the ‘overall scheme’ of income tax
- Why different property businesses are taxed separately – such as the rules for buy to lets and holiday lets
- Why landlords choose cash accounting over accruals
- A detailed look at property tax reliefs and exemptions to ensure they meet the policy intent
- Taxing UK rental income for non-residents
- How to decide which property goes under which tax regime
- Tax issues faced by new or retiring landlords
- How landlords use intermediaries to ease administrative burdens
The experts are also keen to find out how changing the use of a property impacts the owner’s tax, mainly due to family events like marriage or inheritance.
The OTS will also investigate how HMRC can pre-populate tax returns from data collected by other organisations. For example, banks, mortgage lenders and letting agents already pass detailed financial data about their customers to HMRC.
The OTS is an independent government advice agency tasked with making tax easier for everyone by reducing the administrative burden of record-keeping.
“The primary focus of the review will be to identify opportunities for simplification of the tax and administrative treatment of individuals, partnerships or micro companies deriving income from residential property,” said the OTS.
What makes a holiday let?
One of the issues the OTS is looking at is when different tax rules apply to letting the same property.
For example, the definition of a furnished holiday impacts how much council tax or business rates the owner pays.
In Wales, a holiday let must be available to let for 140 days and let to guests for 70 days to qualify for business rates. From April 2023, this rises to open to let for 252 days and let for 182 in any 12 months.
In the rest of the European Economic Area, including England and Scotland, a holiday cottage must be available for 140 days and let for 70 days.
Holiday lets also attract CGT and inheritance tax breaks unavailable to buy to let homes.
Take the OTS property tax survey
The survey takes a few minutes and asks for anonymous personal and business information.