The restriction on deductibility of funding costs for individuals, partnerships of individuals and trustees but not for corporates or corporate partnerships undermines the principle of neutrality in terms of different forms of holding a rental property, promoting one form over another for tax purposes and thereby potentially distorting the economic choice of structure.
It is not clear whether the underlying policy behind the restriction on deductibility of interest for individual landlords, broadly to promote owner-occupier purchasers in the long term, has been delivered as, in many cases, it seems that owners simply transferred their investment properties to corporate vehicles.
The policy of promoting owner-occupation is not necessarily consistent across the different regimes. For example, the availability of a full deduction for loan interest under the furnished holiday lets (FHL) regime may favour investment in holiday lets in competition with owner-occupiers including first-time buyers.
For different taxes, HMRC considers property letting can be a business for one purpose but not for another, and what constitutes a property business as opposed to a passive investment can often be a grey area. This is not necessarily helpful in terms of consistency.
As part of a systematic review of tax measures to assess their effectiveness, the current FHL regime should be evaluated against its policy intent by the government to ensure the current policy objectives are fully articulated and evaluated.
The CIOT questions whether there remains a need for the deeming provision for income tax purposes (where income from jointly held property is assessed on a 50:50 basis). If difficulties in establishing actual ownership remain an issue, consideration might be given to changing to a default position of income tax liability based on actual property ownership shares but with the option to elect for 50:50.
Lack of awareness of the start of making tax digital for income tax in April 2024 remains a concern, particularly among ‘accidental’ landlords or landlords holding only one property.
Many UK residents with overseas property income do not necessarily understand what is required to be declared to the UK authorities (often resulting in nothing being declared) or what deductions can be made for taxes paid overseas. The difference between the UK tax year and the tax year of the overseas state (often the calendar year) exacerbates these issues.
The restriction on deductibility of funding costs for individuals, partnerships of individuals and trustees but not for corporates or corporate partnerships undermines the principle of neutrality in terms of different forms of holding a rental property, promoting one form over another for tax purposes and thereby potentially distorting the economic choice of structure.
It is not clear whether the underlying policy behind the restriction on deductibility of interest for individual landlords, broadly to promote owner-occupier purchasers in the long term, has been delivered as, in many cases, it seems that owners simply transferred their investment properties to corporate vehicles.
The policy of promoting owner-occupation is not necessarily consistent across the different regimes. For example, the availability of a full deduction for loan interest under the furnished holiday lets (FHL) regime may favour investment in holiday lets in competition with owner-occupiers including first-time buyers.
For different taxes, HMRC considers property letting can be a business for one purpose but not for another, and what constitutes a property business as opposed to a passive investment can often be a grey area. This is not necessarily helpful in terms of consistency.
As part of a systematic review of tax measures to assess their effectiveness, the current FHL regime should be evaluated against its policy intent by the government to ensure the current policy objectives are fully articulated and evaluated.
The CIOT questions whether there remains a need for the deeming provision for income tax purposes (where income from jointly held property is assessed on a 50:50 basis). If difficulties in establishing actual ownership remain an issue, consideration might be given to changing to a default position of income tax liability based on actual property ownership shares but with the option to elect for 50:50.
Lack of awareness of the start of making tax digital for income tax in April 2024 remains a concern, particularly among ‘accidental’ landlords or landlords holding only one property.
Many UK residents with overseas property income do not necessarily understand what is required to be declared to the UK authorities (often resulting in nothing being declared) or what deductions can be made for taxes paid overseas. The difference between the UK tax year and the tax year of the overseas state (often the calendar year) exacerbates these issues.
