Residential Property UPDATE

Issue No.1 January 2008

Capital Gains Tax – Private Residence Relief

The basic CGT treatment on the disposal of your main residence is that any gain is exempt from tax provided that the property has been your main residence throughout your period of ownership or throughout that period except for all or any part of the last 3 years.

If you have two or more residences, you can give written notice to HMRC electing which of these should be treated as your main residence and so exempted from CGT. The election must be made within two years of acquiring your other residence. It is important to give consideration as to how best to exercise this right to elect in order to obtain the exemption (in part) on as many of your homes as possible. If no election is made within the time period HMRC will decide on the facts and the opportunity may be lost!

Building Regulations – Make sure you have all necessary consents

An issue that often delays a sale or purchase is a lack of building regulations consent for alterations carried out.

Building regulations are separate from planning permission and may be needed even if planning permission is not. Building regulations control the safety of a building and, increasingly, ecological matters. They lay down minimum standards for matters such as the structure, drainage, ventilation, fire safety, energy efficiency and electrical safety of a building.

Although local authority enforcement is often poor, lenders always require a solicitor to confirm that all necessary consents have been obtained. The Government is also consulting on measures to tighten up proper enforcement.

When an application for building regulations consent has been made, an inspector will usually carry out periodic inspections of the works. On completion, if the works meet the required standards, a final Certificate of Compliance will be issued.

If you are aware that works have been carried out without the necessary consents, it may be possible to obtain a retrospective Certificate of Regularisation. Please get in touch with us if you would like to discuss this further. Sometimes indemnity insurance may be available, but there are many instances where this will not be suitable, for example if you have already made contact with the local authority about the works, or if it is intended that any further works are to be carried out.

It goes without saying that if you are proposing to carry out any works to your house or flat, you should always obtain all necessary consents. Many local authorities offer advice as to what does or does not need building regulations consent. In our personal (rather than professional) experience, builders do not always give correct advice about this! For flats, remember that Landlord’s consent to alterations will often be needed too.

Other certificates needed if you are selling a house or flat

If you have replaced any windows or doors in your home since 1 April 2002 you will need either building regulations consent or a FENSA certificate showing that the glazing met the required thermal standards. Not having these can hold up your sale. If you obtained a FENSA certificate but cannot now locate it, replacement certificates can be obtained through the FENSA website: www.fensa.co.uk

If you carry out any works to a gas appliance or if a new one is installed, it is always recommended that this is done by a CORGI registered installer. Some works will need building regulations consent and the CORGI installer will provide either the required Declaration of Safety or a Building Regulations Compliance Certificate. Again, these certificates will need to be produced on a sale.

Since 1 January 2005 building regulations consent has also been required for electrical works carried out to houses and gardens other than for minor works such as replacing a switch, ceiling rose or single cable. If the works are carried out by a registered installer they can certify the works and notify your local council. If the work is carried out by anyone else it will be necessary to apply to the council for building regulations consent. Again, evidence of the required certificate or consent will need to be produced on a sale.

If you would like more information about the above, please get in contact.

Home Information Packs – Now needed for all homes marketed for sale

All homes put on the market for sale from 14 December 2007 must have a Home Information Pack (HIP). Previously HIPS were only required for homes with 3 or 4 bedrooms.

We will be pleased to help you to prepare a HIP, using the Law Society’s on line HIP preparation system, provided through our on line search providers.

However, if your home was already on the market before 14 December (or before 1 August if your home has 4 or more bedrooms or before 10 September 2007 if it has 3 or more bedrooms) then at present there is no need to have a HIP if you are continuing to market your house or flat.

Changes to the Taxation of UK Non-Domiciliaries

As part of the Pre Budget Report last year, HM Treasury announced wide changes to the taxation of individuals resident but not domiciled in the UK. This has been followed by a consultation paper but to date no draft legislation has been produced. In summary the proposed changes are:

• Resident non-domiciliaries who have been in the UK for longer than 7 out of the past 10 years will only be able to access the remittance basis of taxation on payment of an annual charge of £30,000;
• People who use the remittance basis of taxation will no longer be entitled to income tax personal allowances;
• The residence rules will be changed so that days of arrival in and departure from the UK would count towards establishing residence;
• Lastly, various “anomalies” in the regime will be addressed. These include the fact that currently non-domiciled residents can avoid tax on gains accruing in non-resident trust or companies when they are remitted to the UK.

It is currently anticipated that these changes will be introduced from April 2008. While definitive tax planning is not possible until draft legislation is produced, it is clear that the capital gains tax benefits enjoyed by non-domiciliaries will be reduced and that those potentially affected should consider their position now.

The full impact of these changes on tax planning for UK non-domiciliaries will be considered in a later issue of our Newsletter once the draft legislation has been published.

Note:

Please note that this newsletter is not intended to be a comprehensive statement of the law and should be used for guidance purposes only. If you require specific legal advice please contact Alastair McClean, Sharon Rutter, Michael O’Shea or Lisa Duke or by telephone 020 7493 2903.