Tax is always a hot topic for landlords, it’s safe to say that it can often be a minefield… and its getting more complicated all the time!
Landlords have had much to contend with in recent years in terms of new legislation, resulting in investor behaviour often changing as a direct result. As with many things in life, it’s those that can adapt their business model in face of changing circumstances that survive and thrive!
Here we recap on the major recent tax changes, the upcoming deadlines, and the future proposals that all landlords should be aware of;
More Landlords as Limited Companies
Last year many savvy landlords created buy-to-let limited companies to maximise their profits. This trend has also aligned with the mini-property boom around the stamp duty holiday, as investors rushed to take advantage while they could.
The recent growth in buy-to-let companies has mostly come from individual landlords looking to counter the changes to mortgage income tax relief. This demonstrates that more investors with small portfolios wished to take advantage of the tax relief, and are now choosing to pay corporation tax rather than income tax.
Creating a limited company is not a magical solution to alleviate all tax pressures, however, and we strongly recommend speaking with a tax advisor before making any major decisions. This is especially true when you bear in mind predictions on upcoming increases in the basic rate of dividend tax.
Clampdown on Short Term Lets
Landlords renting out their properties short term will, from April 2023, need to meet more stringent criteria around the number of days they are let out, to still benefit from business rates (and business rates relief).
One aim of this is, hopefully, to increase the supply of properties available for long-term let, as many properties are anticipated to fall short of the ‘number of days let’ criteria.
More properties may come back on the market from owners that will suddenly be required to pay council tax, rather than have the benefit of small business rates relief.
Stamp Duty Reform Coming?
The stamp duty holiday is now well and truly over. However, the topic of stamp duty is still a hot one in the property industry.
The stamp duty holiday had a profound and lasting effect on the property market. House prices, whilst they have slowed, are still climbing according to the latest figures from the Office of National Statistics.
There are also growing calls for stamp duty to be permanently reformed, and be replaced with a much fairer property tax. This move, although presently a long way from becoming a reality, would also help bolster the number of long-term rented homes.
Closing the loophole on short-term let properties as outlined above, could be seen as a step in the right direction. However, the additional three per cent stamp duty surcharge on second homes is actually a barrier to investment for much needed homes in the private rented sector.
Making Tax Digital Deadlines
Making Tax Digital is affecting letting agents and landlords now, and is part of a complete shift to fully digitised record-keeping and submission processes.
Landlords need to be aware of the deadlines applicable to their business as follows;
- From April 2019, VAT-registered businesses with taxable turnover above the VAT threshold had to comply with Making Tax Digital.
- From April 2022, Making Tax Digital applies to VAT-registered businesses with turnover below the VAT threshold.
- From April 2024, Making Tax Digital will apply to all non-VAT registered landlords and businesses.
This year, the government has waived late filing and payment penalties by a month for self-assessment tax returns due to the impact of Covid-19 on businesses. From 6 April 2024, however, this process will also fall under the new digital rules. Digital records will be required and returns filed using relevant compatible software.
No Capital Gains Tax Changes
Landlords across the country breathed a collective sigh of relief last October, when the Chancellor announced that he wouldn’t be making any major changes to capital gains tax.
The fear was that it would be aligned more with income tax, thus adversely affecting those selling rental properties. It’s a welcome reprieve for landlords who have come to expect the worst lately from tax changes.
At Horizon Lets we are asking ourselves if capital gains tax will move back onto the agenda in the future? Or whether the lack of housing stock available for long-term lets will stop the government from introducing further measures that would put investors off entering the market?
It’s all conjecture but, as landlords pivot to find new opportunities and ways to successfully manage a property portfolio they need expert advice more than ever. We are not tax specialists but make sure we are up to date with all legislative changes in the property industry, and our landlords know they can rely on us to keep them informed about anything that affects their investments.
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