The Office of Tax Simplification has published a new report Property income review: simplifying income tax for residential landlords, focusing on the UK taxation of income from residential property, mainly in relation to individuals. Key findings and recommendations include the following:
The report notes the long-standing tax complexity for landlords of whether costs are allowable straight away as repairs and replacements or disallowed as capital improvements. The government should consider a broader immediate income tax relief for the majority of property costs.
Nearly half of landlords will be filing for Making Tax Digital for Income Tax in respect of jointly-owned property. It is common practice for only one of the owners to keep records, and the report recommends that HMRC should establish a system to allow this practice to continue for MTD. The report also notes the importance of HMRC accepting multiple agents to help with the new tax filings and recommends that HMRC should not go ahead with MTD until these issues have been resolved.
The furnished holiday lettings (FHLs) regime is not widely used and adds complexity to the tax rules which apply to property income. The UK government should consider whether there is continuing benefit to the UK in having a separate tax regime for FHLs.
Removing the FHLs regime could, however, put pressure on the boundary between whether a taxpayer has a property business or a trade. The government should consider whether it would be appropriate to introduce a statutory ‘bright line’ test to define when a property business should be handled under the trading rules.
The report summarises its recommendations in Annex A, together with further recommendations in Annex B on where and how HMRC could improve its property income guidance.
Leigh Sayliss, vice-chair of the CIOT’s Property Taxes Committee, welcomed that the report addresses some of the difficulties in adopting MTD for property income, especially for overseas owners and in cases of co-ownership.
‘The report highlights the lack of awareness by tenants – and difficulties even where the tenant is aware – of the non-resident landlord scheme combined with the out-of-date threshold for triggering the scheme’, Sayliss said. ‘We suggest a review of this scheme may be helpful especially now that the register of beneficial ownership and the annual tax on enveloped dwellings (ATED) give HMRC more visibility of overseas property income.
‘We also back the OTS’ call for measures that help taxpayers without needing changes in legislation such as better guidance to help taxpayers distinguishing between capital expenditure and revenue expenditure, giving practical examples.’
Sayliss, who is also a partner at Memery Crystal, continued: ‘The report offers several ways in which to improve this area of the tax system. However, the current focus of the government is, understandably, on maximising revenue, tackling avoidance and recovering monies incorrectly claimed under the various Covid schemes. We are, therefore, concerned about how much resource HMRC will be able to put into implementing any changes at this time.
‘The report highlights the role that the OTS can play in looking across different areas of HMRC, and include contributions from other departments, for example the Department for Business, Energy & Industrial Strategy (BEIS) proposals to raise the energy performance certificates standards for residential properties being let. In the absence of the OTS, there is a question as to whether HMRC will have the resource and remit to take such a wide-ranging approach.
‘If the government is serious about “embedding simplification” in the UK’s tax policy-making process, we consider that it should retain the OTS and consider strengthening it’, Sayliss added.
The Office of Tax Simplification has published a new report Property income review: simplifying income tax for residential landlords, focusing on the UK taxation of income from residential property, mainly in relation to individuals. Key findings and recommendations include the following:
The report notes the long-standing tax complexity for landlords of whether costs are allowable straight away as repairs and replacements or disallowed as capital improvements. The government should consider a broader immediate income tax relief for the majority of property costs.
Nearly half of landlords will be filing for Making Tax Digital for Income Tax in respect of jointly-owned property. It is common practice for only one of the owners to keep records, and the report recommends that HMRC should establish a system to allow this practice to continue for MTD. The report also notes the importance of HMRC accepting multiple agents to help with the new tax filings and recommends that HMRC should not go ahead with MTD until these issues have been resolved.
The furnished holiday lettings (FHLs) regime is not widely used and adds complexity to the tax rules which apply to property income. The UK government should consider whether there is continuing benefit to the UK in having a separate tax regime for FHLs.
Removing the FHLs regime could, however, put pressure on the boundary between whether a taxpayer has a property business or a trade. The government should consider whether it would be appropriate to introduce a statutory ‘bright line’ test to define when a property business should be handled under the trading rules.
The report summarises its recommendations in Annex A, together with further recommendations in Annex B on where and how HMRC could improve its property income guidance.
Leigh Sayliss, vice-chair of the CIOT’s Property Taxes Committee, welcomed that the report addresses some of the difficulties in adopting MTD for property income, especially for overseas owners and in cases of co-ownership.
‘The report highlights the lack of awareness by tenants – and difficulties even where the tenant is aware – of the non-resident landlord scheme combined with the out-of-date threshold for triggering the scheme’, Sayliss said. ‘We suggest a review of this scheme may be helpful especially now that the register of beneficial ownership and the annual tax on enveloped dwellings (ATED) give HMRC more visibility of overseas property income.
‘We also back the OTS’ call for measures that help taxpayers without needing changes in legislation such as better guidance to help taxpayers distinguishing between capital expenditure and revenue expenditure, giving practical examples.’
Sayliss, who is also a partner at Memery Crystal, continued: ‘The report offers several ways in which to improve this area of the tax system. However, the current focus of the government is, understandably, on maximising revenue, tackling avoidance and recovering monies incorrectly claimed under the various Covid schemes. We are, therefore, concerned about how much resource HMRC will be able to put into implementing any changes at this time.
‘The report highlights the role that the OTS can play in looking across different areas of HMRC, and include contributions from other departments, for example the Department for Business, Energy & Industrial Strategy (BEIS) proposals to raise the energy performance certificates standards for residential properties being let. In the absence of the OTS, there is a question as to whether HMRC will have the resource and remit to take such a wide-ranging approach.
‘If the government is serious about “embedding simplification” in the UK’s tax policy-making process, we consider that it should retain the OTS and consider strengthening it’, Sayliss added.
