A leading accountancy firm says the relative good health of the rental market and house price appreciation will trigger stricter enforcement action by HMRC in the year to come.

Tim Walford-Fitzgerald, a partner at accountancy firm HW Fisher, says of six possible tax clampdowns on the property sector, the number one concerns landlords. 

“Now that the residential mortgage relief restriction is in full force, we expect less tolerance for misreporting, especially in light of the losses that some landlords may have from recent defaults” he cautions.

And he adds: “Capital Gains Tax for residential property transactions can now be paid within 60 days, following calls for the 30-day payment period to be doubled due to unsuspected homebuyers being hit with fines. 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.”

Other lettings-related tax changes this year may well include one regarding stamp duty on some kinds of property.

“At the moment if you buy the classic high street property of a ground floor shop with a flat above, you only pay commercial rates of SDLT” notes Walford-Fitzgerald.  

“HMRC are proposing that the cost should be apportioned so only the shop benefits from commercial rates, with the flat suffering the higher residential rates. HMRC are currently consulting on these proposed changes together with considering changes to reduce the increasing number of incorrect multiple dwelling relief claims. The review is due to close on February 22.”

On top of that, the reduced VAT rate has now ended on holiday lets.

He continues: ”Don’t forget that the temporary reduced rate of VAT for supplies of holiday accommodation increased from 5.0 to 12.5 per cent on October 1 2021. Even if a holiday is taken after October 1 the 5.0 per cent can still be applied if a tax point is created beforehand.”

And Walford-Fitzgerald comments that landlords should avoid the VAT and tax traps of developing student accommodation.

“There are VAT reliefs available for student accommodation where classed as dwellings or relevant residential. The former is preferred as it avoids the need to monitor the use of the property over the 10 years post completion. 

“If constructed as dwellings (single studio units or cluster flats), the VAT relief (zero-rate) extends not just to the main contractors but to services provided by sub-contractors.”

He suggests that careful structuring of the expenditure can result in VAT being recovered on professional services where it is charged at 20 per cent. Any planning conditions that prevent the separate disposal of a studio/cluster flat within the development could significantly alter the above analysis and result in a VAT cost against development profit.

Other property-related tax threats in the coming year include new taxes on property developers coming into effect from April 1, and complicated VAT thresholds applying to the conversions of commercial property to residential use.

He explains: “Last year was been one of the busiest for the housing market in more than a decade. According to Zoopla, estimates show that there were 1.5 million sales in 2021, with the total value of homes changing hands at £473 billion, some £95 billion higher than in 2020. 

“As a result, we expect to see HMRC become more proactive on reclaiming owed property tax. As property transactions tends to involve high values, if there is an issue with VAT it usually involves a significant sum. It is therefore very important that landlords, developers and home renovators are up to speed with the latest changes.”