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A “hidden” tax for tenants, taxes on second homes, Airbnb licensing, buy to let companies, moving home for the unvaccinated

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UK property news this week reveals important news about tax liabilities for both tenants and also owners of second homes. The licensing of Airbnb holiday lets is also mooted. And, registrations of new buy to let companies have reached an all-time record.

Meanwhile, new rules impose greater restrictions on the unvaccinated – compared with those fully vaccinated – who are moving home.

Tenants’ cumulative rent could see them liable to tax

Some tenants – along with their landlords – are likely to meet with unwelcome surprise news of a tax liability they had no idea they would face, according to a story in Landlord Today on the 12th of January.

Although remains largely unknown by tenants – or, indeed, the wider buy to let community – the rule was introduced back in 2003. It created a liability for tenants of some residential tenancies to pay a form of Stamp Duty Land Tax (SDLT).

Once a tenant has paid a cumulative total of £125,000 or more in rent – because they are paying a high rent or have simply held the tenancy for a long time, for example – he or she becomes liable to pay one per cent of that total rent value as an annual tax, officially classified as an SDLT.

What this might mean is illustrated by way of the example of rents in London, where the monthly average is currently £1,597. That equates to a total of £19,164 a year. At that rate, the tenants’ SDLT threshold of £125,000 will be reached in just six and a half years of a continuous tenancy.

In more expensive parts of the capital, such as Kensington and Chelsea, let’s say, the threshold would be reached more quickly – for some tenants, in less than four years.

Tax for UK second homeowners?

A story in the Express newspaper on the 16th of January exposes a dodge used by some second homeowners to avoid paying Council Tax.

The loophole exploited by some owners rests on the current arrangements under which a second home that is let to tenants qualifies – as a commercial property – for relief from Council Tax and are levied small business rates instead.

Some owners are falsely claiming that their second home is let to tenants even when it is not – simply to qualify for that relief from Council Tax. No proof is typically requested to show that the property or properties are indeed let to tenants.

To close the loophole, second homeowners will be required to prove that their property is let on a commercial basis. With effect from April 2023, this will mean demonstrating that the property was let for a minimum of 70 days in the previous 12 months, that it was available to rent for a minimum of 140 days, and that it will be similarly available throughout the year to come.

Airbnb landlords in rural communities may need to acquire a licence

Amid fears that locals are being driven from the housing market by an abundance of short-term rentals for visitors, some rural communities are arguing for the introduction of a licensing system for platforms such as Airbnb.

In a story on the earlier this week, the Mail Online reported that Members of Parliament from areas such as Devon, Cornwall, and the Isle of Wight are calling for a licensing system under which local authorities would need to authorise the owners of second homes to offer short-term lets.

Record 47,400 buy to let companies set up in 2021

A switch to purpose-designed private companies seems to confirm a major change in the ownership profiles of the buy to let market. The year 2021 saw a record number of 47,400 new buy to let companies set up, according to figures released by Companies House and reported by Property Wire on the 17th of January.

This is almost double the number of buy to let companies set up in 2017 – a year marked by the beginning of the withdrawal of tax relief on mortgage interest repayments by landlords. Whilst landlords pay income tax on the effective turnover earned from their buy to let properties, companies pay corporation tax.

While 2021 was a record year for new company formations, the rate at which landlords are switching to this form of ownership is falling – there was a 14% increase in formations from 2020 to 2021 but a 30% increase between 2019 and 2020.

New government guidelines for unvaccinated buyers and renters

The government has introduced new guidelines for unvaccinated buyers and renters revealed Zoopla on the 12th of January.

If you are planning to move house or take up a new tenancy and have not yet been fully vaccinated, you will need to self-isolate if anyone in your household gets a positive test for the coronavirus – even if it is your moving day.

If you are fully vaccinated, on the other hand, the move into your new home can still go ahead – even if someone in your household tests positive.