On top of the other tax rises, freezes in allowances and thresholds, landlords with property held in personal names will also pay more in capital gains tax. Landlords with property in a limited company will have their tax-free dividend allowance reduced. With property prices forecast to drop by up to 9% anyone wishing to sell up and cash in may find they are not getting what they expected just a few months ago. For many landlords investing in property is a long-term investment so whilst the outlook for the next 2 years is distinctly tough, light could be emerging on the horizon.
Landlords with ownership in personal names
The current Capital Gains Tax Annual Exempt Amount of £12,300 is set to reduce to £6,000 from April 2023 and to £3,000 from April 2024. For individual landlords, this means an extra £1,764 for higher rate taxpayers and £1,134 for lower rate taxpayers on any capital gains above £6,000 in 2023-24. From April 2024 this increases to an extra £2,604 for higher-rate taxpayers and £1,674 for lower-rate taxpayers on any capital gains above £3,000.
Landlords with ownership in a limited company
The Dividend Allowance will reduce from £2,000 to £1,000 from April 2023 and to £500 from April 2024. Assuming you were to take at least £2,000 in dividends the additional tax in 2023-24 would be £87.50 for a lower rate taxpayer, £337.50 for a higher rate taxpayer and £393.35 for an additional rate taxpayer. In 2024-25 the amounts would be £131.25 for a lower rate taxpayer, £506.25 for a higher rate taxpayer and £590.25 for an additional rate taxpayer. From April 2023 profits up to £50,000 are still taxed at 19%. Between £50,001 to £250,000 a taper of between 19% to 25% is applied and any profits above £250,000 will be taxed at 25%.
Is there light at the end of the tunnel?
Unlike the previous budget financial markets have barely reacted. Whilst interest rates are still predicted to rise, could they reach their peak in the middle of next year and then start to come down? It is unlikely that we will see interest rates of 0.1% again, but having lived through at least 4 recessions in my lifetime, this feels like déjà vu. If you can get through the next 18 months to 2 years, I expect the property and rental market will emerge stronger. Good rental property is still a great asset to invest in for long-term gains, good income yield and protecting wealth for future generations, in my experience.
Other Key points from Autumn Statement 2022
Here is a run-through of the main announcements in the Autumn Statement:
- The Autumn Statement reduces the generosity of the Dividend Allowance and the Capital
- Gains Tax Annual Exempt Amount
- Additional rate threshold reduced from £150,000 to £125,140 from 6 April 2023
- Many thresholds are frozen by the government until April 2028
- Corporation Tax will be 25% from April 2023 for companies with profits in excess of
- Stamp Duty rates announced in September will be temporary and will come to an end in
- March 2025
- Windfall taxes announced to raise an extra £14 billion per year
- HMRC to clamp down on tax avoidance and evasion
- From 2025 electric vehicles will have to pay Vehicle Excise Duty
Personal Income Tax
The government will decrease the additional rate threshold (ART) from £150,000 to £125,140 from 6 April 2023. The ART for non-savings and non-dividend income will apply to taxpayers in England, Wales, and Northern Ireland. The government will reduce the Dividend Allowance from £2,000 to £1,000 from April 2023, and to £500 from April 2024. The government is also fixing other personal tax thresholds within income tax, NICs and Inheritance Tax for an additional 2 years, until April 2028.
Capital Gains Tax
The government will reduce the Capital Gains Tax Annual Exempt Amount from £12,300 to £6,000 from April 2023 and to £3,000 from April 2024.
As previously confirmed, the planned increase in the Corporation Tax rate to 25% for companies with over £250,000 in profits will go ahead.
The Autumn Statement maintains the VAT registration threshold at £85,000 for two years from April 2024.
Stamp Duty Land Tax
On 23 September 2022, the government increased the nil-rate threshold of Stamp Duty Land Tax (SDLT) from £125,000 to £250,000 for all purchasers of residential property in England and Northern Ireland and increased the nil-rate threshold paid by first-time buyers from £300,000 to £425,000. The maximum purchase price for which First Time Buyers’ Relief can be claimed was increased from £500,000 to £625,000. This will now be a temporary SDLT reduction. The SDLT cut will remain in place until 31 March 2025 to support the housing market and the hundreds of thousands of jobs and businesses which rely on it.
The government’s action to repair the public finances will be supported by a package of measures to tackle tax avoidance, evasion, and wider non-compliance. This will raise an estimated £1.7 billion over the next 5 years. The government is investing a further £79 million over the next 5 years to enable HMRC to allocate additional staff to tackle more cases of serious tax fraud and address tax compliance risks among wealthy taxpayers. This investment is forecast to bring in £725 million of additional tax revenues over the next 5 years.
Annual Investment Allowance (AIA)
The government is setting the Annual Investment Allowance (AIA) at its highest ever permanent level of £1 million from 1 April 2023. This amounts to full expensing for an estimated 99% of UK businesses, which means that those businesses can write off the cost of qualifying plant machinery investment in one go.
The government is extending the Energy Profits Levy to the end of March 2028 and increasing its rate by 10 percentage points to 35% from 1 January 2023. The government will introduce a new, temporary 45% Electricity Generator Levy on these extraordinary returns from 1 January 2023.
National Insurance Contributions
The government will fix the level at which employers start to pay Class 1 Secondary NICs for their employees (the Secondary Threshold) at £9,100 from April 2023 until April 2028.
Reflecting the success of the transition to electric vehicles, the government will therefore introduce Vehicle Excise Duty on electric cars, vans and motorcycles from April 2025. From April 2025, electric cars, vans and motorcycles will begin to pay VED in the same way as petrol and diesel vehicles.
The State Pension will be uprated by inflation, in line with the commitment to the Triple Lock. The State Pension age is legislated to increase over the next 25 years. There is currently a Review of the State Pension age being carried out which is considering whether the existing timetable remains appropriate. The Secretary of State for Work and Pensions will publish the government’s Review of the State Pension age in early 2023. The Review will need to carefully balance important factors, including fiscal sustainability, the economic context, the latest life expectancy data and fairness both to pensioners and taxpayers.
National Minimum Wage
From 1 April 2023, the government will increase the National Living Wage (NLW) by 9.7% to £10.42 an hour, for those aged 23 and over
The inheritance tax nil-rate bands are already set at current levels until April 2026 and will stay fixed at these levels for a further 2 years until April 2028. The nil-rate band will continue at £325,000, the residence nil-rate band will continue at £175,000, and the residence nil-rate band taper will continue to start at £2 million.
Find out more about how the autumn budget may affect you as a landlord by getting in touch at 0800 907 8633, via email@example.com or via our online contact form to speak to one of our specialist tax advisors.