How Does The Mini-Budget Affect Landlords?

Sep 26, 2022

How the mini-budget affects UK landlords & our outlook on what this means for the UK property market.

Table of Contents:

Overall Summary

Key points from the mini-budget

Stamp Duty Land Tax

Personal Income Tax

Corporation Tax 

National Insurance Contributions

Seed Enterprise Investment Scheme

Overall Summary

One of the biggest announcements was the cut to stamp duty. Whilst this will help anyone wishing to buy a home and by extension helpful for any landlords wishing to purchase property in their personal names, there is no change for limited companies.

With most higher-rate taxpayers now purchasing BTL property through a limited company the announcement offered no relief for them. Couple this with the increase in interest rates, and we are already seeing a number of clients having second thoughts and deciding not to invest in higher-value properties as the rental margins are becoming worryingly thin.  

So how does this affect UK Landlords? We expect to see a trend of higher-value properties being bought for BTL to drop unless these are being bought for serviced accommodation or Airbnb. More and more investors will more than likely look to less expensive areas which still offer good rental yields in areas like the North West and North East.

For landlords looking to re-mortgage or coming out of fixed rate deals the outlook for interest rates, at the moment, in the next 12 to 18 months is only one way. Up. Many landlords face a large increase in mortgage payments and may find that when their fixed rate period ends the figures start to look decidedly risky. Lenders may require them to pay off some of the loans in order for them to be able to offer a mortgage with enough interest cover. Could this mean some landlords deciding to sell up altogether?

Key points from the mini-budget

Despite the name, the mini-budget has announced quite a few changes for the UK.

Here is a run-through of the main ones as they affect UK Landlords:

  • Cut to Stamp Duty which means 200,000 fewer people will pay the tax on house purchases but this does not apply to limited companies
  • The top rate of Income Tax for the highest earners was abolished. Those on more than £150,000 a year will no longer pay 45 per cent but instead the lower 40 per cent rate applicable to those on over £50,271
  • The planned increase to Corporation Tax scrapped
  • Cut to the basic rate of Income Tax brought forward

 

Stamp Duty Land Tax

One of the biggest announcements was the cut to stamp duty. The government is reducing the tax burden on people buying a home. From 23 September 2022, the government will increase the threshold above which Stamp Duty Land Tax (SDLT) must be paid on the purchase of residential properties in England and Northern Ireland from £125,000 to £250,000.

The government will also increase the relief that first-time buyers can receive. From 23 September 2022, the threshold at which first-time buyers begin to pay residential SDLT will increase from £300,000 to £425,000 and the maximum value of a property on which first-time buyers’ relief can be claimed will also increase from £500,000 to £625,000. These changes will reduce the cost of purchasing a home and will take 200,000 homebuyers, including 60,000 first-time buyers, out of SDLT entirely. 

As SDLT is devolved in Scotland and Wales, the Scottish and Welsh Governments will receive funding through the agreed fiscal framework to allocate as they see fit.

Please note that the above thresholds do not apply to Limited Companies who will continue to pay SDLT at the same rates as before the budget. 

Personal Income Tax

The government will bring forward the 1 percentage point cut to the basic rate of income tax to April 2023, 12 months earlier than planned. Currently, income between the tax-free Personal Allowance of £12,570 and limit of the basic rate band £50,270 is taxed at 20%. From next April the 20% rate of tax for basic rate taxpayers has been permanently reduced to 19%. 

This will apply to the basic rate of non-savings, non-dividend income for taxpayers in England, Wales and Northern Ireland; the savings basic rate which applies to savings income for taxpayers across the UK; and the default basic rate which applies to non-savings and non-dividend income of any taxpayer that is not subject to either the main rates or the Scottish rates of income tax. 

The additional rate of income tax will also be removed from April 2023. Currently, any individual earning more than £150,000 pays tax at 45% on income above this threshold. From 6 April 2023, there will be no additional rate threshold and any income over the basic rate threshold of £50,270 will be taxed at the higher rate of tax which is currently 40%. 

Again, this will apply to the additional rate of non-savings, and non-dividend income for taxpayers in England, Wales and Northern Ireland. Where rates are devolved in Scotland, the Scottish Government will receive funding through the agreed fiscal framework to allocate as they see fit.

In addition, the government will reverse the 1.25 percentage point increase in dividend tax rates from April 2023. This will benefit 2.6 million dividend taxpayers with an average saving of £345 in 2023-24 and additional rate taxpayers will further benefit from the abolition of the additional rate of dividend tax. This will support entrepreneurs and investors across the UK to drive economic growth.

The new dividend rates will be 7.5% for basic rate taxpayers and 32.5% for higher rate taxpayers. 

Corporation Tax 

The government has committed to cancel the increase in the main rate of Corporation Tax to 25% which was due to take effect from April 2023, keeping the rate at 19%.  

National Insurance Contributions

The government had already increased the National Insurance contributions (NICs) Primary Threshold and Lower Profits Limit (from July 2022 onwards), to align the point at which people start to pay NICs with income tax, at £12,570. 

The government is now going further by reducing NICs rates by 1.25 percentage points from November and cancelling the Health and Social Care Levy coming in from April 2023. This will save 28 million taxpayers an average of £330 a year. This measure will also make it cheaper for businesses to employ more staff being worth an average of £9,600 for over 900,000 businesses.

HMRC appreciates that the timeline for changes by 6 November is tight and that some employers may not be able to implement the changes in time. HMRC will be directing employees to their employers to correct any overpaid NICs in the first instance and the accompanying press release notes that some employees may not see the benefit of the change until December or January 2023.

Seed Enterprise Investment Scheme

The government is supporting companies to raise money and attract talent by increasing the generosity and availability of the Seed Enterprise Investment Scheme (SEIS). 

From April 2023, the annual investor limit will be doubled to £200,000. Individuals can therefore claim SEIS Income Tax relief at 50% of the amount invested in the tax year in which the investment is made, up to £200,000 of investment (i.e., a maximum of £100,000 of income tax relief per year).

For individuals wanting to reduce their tax liability, this could be a viable option. If you need any further information about the SEIS you will need to speak to your Independent Financial Advisor (IFA) and it is not advised to invest this investment, or any others for that matter, without getting advice from your IFA first. 

We will provide more updates on the mini-budget and any further announcements from the Government as and when the details become available. 

If you found this article informative then why not read our guide to property allowance or landlord tax next?

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