Tax changes for property traders and developers are detailed in a new bill currently before MPs.

Although scare stories have claimed landlords will pay income tax on property profits instead of capital gain tax, the measures in the Finance Bill 2016-17 are quite clear.

The section some lawyers and landlords claim switches any profit made on the sale of a buy to let home from liable to income tax instead of capital gains tax actually says the provision only applies to property traders and developers.

Although the section discusses taxing ‘a person who realises a profit or a gain from a disposal of any land in the UK’, the bill goes on to add four conditions to the disposal which exclude buy to let landlords.

The four conditions are:

  • The purpose of acquiring land or property was to realise a gain from a future disposal
  • That one of the main purposes of acquiring the land was to make a disposal profit or gain
  • The land is held as trading stock
  • That the main purpose of developing land or property was to sell at a profit or gain

As buy to let landlords are regarded as investors rather than traders by HM Revenue and Customs (HMRC), the third condition effectively rules them out of paying income tax under the new provisions.

However, the Law Society argues the measures will give uncertainty to landlords over how their property transactions are taxed.

“If the government did not intend to make a material change, they need to clarify the language in the bill before it is passed. If they are intent on these changes, they should submit them for proper public consultation and legislative scrutiny,” said a Law Society spokesman.

The bill also includes provisions for repealing the old wear and tear allowance in favour of a new replacement domestic items relief.

The new relief offers allows landlords to offset the cost of replacing domestic items against tax.

Domestic items are defined as furniture, furnishings, kitchenware and household appliances in the bill.

Read the draft Finance Bill (Section 3560A)