The Office of Tax Simplification (OTS) makes recommendations to the government on how to simplify income tax for residential property owners and how to increase understanding of property owner obligations. The following have been recommended by OTS and the new rules are expected to come into place by 2024.
1.Making tax digital for income tax for property owners
By April 2024, property owners will be required to keep digital records and submit their income tax returns through the ‘Making Tax Digital (MTD)’ software. The OTS have recommended establishing a system for filing income tax reports for jointly owned properties, allowing MTD to authorise filing agents to support on report submissions on behalf of relevant property owners and increasing the income threshold to more than £10,000, “at least for the medium term”.
The OTS stated that more clarity is required on when costs for repairs or replacements should be permitted immediately, or whether they should be disallowed for income tax.
The OTS report stated that furnished holiday lets?are currently enjoying “more favourable tax treatment” compared to long-term let properties.
The report questions whether a separate tax regime for this category of short-term lets is advantageous or if “many would currently use that regime as a proxy for many of the benefits of the trading rules.”
The OTS suggests that a test should be introduced to define if the business owner is “trading” if a separate tax regime is not considered.
However, if the separate tax regime remains, the OTS recommends the following: European Economic Area (EEA) tax on furnished holiday lets can be applied to the UK. Since the UK is not part of the EEA, the OTS recommends either expanding this treatment globally, or limiting this tax regime to the UK.
Currently, a civil partner or spouse renting a property jointly can split taxable profits equally, unless a Form 17 is submitted. The OTS suggests removing the 50:50 split rule for spouses and civil partners and instead recommends aligning income tax for joint ownership with that for Capital Gains or inheritance tax.
Non-UK resident property owners are required to file UK tax returns on their UK-based rented property, regardless of whether they are taxed in their country of residence.
The OTS recognises that non-UK resident property owners often find it difficult to access the appropriate online systems to file their taxes. Therefore, the OTS recommends that more guidance and support is provided for non-UK resident property owners to access the appropriate log in details to manage their taxes online. Additionally, the OTS suggests that these property owners should be provided with access to the online self-assessment tax return process, rather than having to submit paper documents.
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