OTS review of property taxation

The Office of Tax Simplification (OTS) has published an online Survey and Call for Evidence to seek views about how the taxation of property income could be simplified, Following the publication of a scoping document on 1 March 2022, the review will consider the current regimes for the taxation of residential property held by individuals, partnerships and micro-companies, and develop recommendations for simplification and ways of addressing distortions.

The OTS point out that income from residential property owned by individual landlords is currently taxed under one or two regimes (unless it amounts to a trade):

• general regime: income tax is due on the profits from renting out the property, after allowable deductions. However, residential property mortgage interest relief is restricted to the basic rate of income tax, and there are no specific capital gains reliefs
• Furnished Holiday Lettings regime: applies to residential property let on short term lets. The income then attracts some additional reliefs as, for example, mortgage interest is fully deductible and capital allowances are available. In addition, Business Asset Disposal Relief is available on gains made when properties are sold.

The picture is further complicated by the existence of the Rent a Room Scheme, which provides a tax exemption of up to £7,500 for individuals
renting out furnished accommodation within their home.

Companies are subject to corporation tax on their profits from renting property and are not subject to specific restrictions on the mortgage interest they can deduct. This review will consider the letting of property by micro companies, but will not examine property development or letting by
larger companies or REITS.

The scoping document does not restrict the range of responses to the consultation but does suggest a that comments might be directed towards a range of questions collected into a number of areas. These include:

• Structural aspects: such as any distortions or benefits from the different regimes
• Operational aspects: such as any difficulties in applying or understanding the rules
• Administrative and compliance aspects
• Non-UK aspects: including the non-resident landlords scheme.

The survey is open until 5 June 2022 and can be found here. The Call for Evidence, which also runs to 5 June 2022, invites more detailed comments on the technical and practical operation of the tax system in relation to property income. Responses to the Call for Evidence should be sent to ots@ots.gov.uk.