Here’s a landlord perspective on the announcements made by UK Chancellor Rishi Sunak at the 2021 Budget. Also included are the upcoming ‘Tax Day’ announcements on 23 March 2021.
Budget Tax Announcements for Landlords
The English stamp duty holiday has been extended to 30 June. From 1 July, the residential rate of Stamp Duty will apply only to properties worth over £250,000. Then, from 1 October, the holiday ends completely and stamp duty thresholds revert back to pre-covid thresholds.
From April 2023, corporation tax will be increased from its current rate of 19% to a maximum of 25%. This will affect all landlords who let their properties through a limited company. In recent years, landlords with larger portfolios have incorporated their business in order to pay less tax. But this tax increase could fundamentally change the arithmetic behind the decision to create a property company.
The tax rises may not end there. On 23 March, further tax plans will be announced, with much speculation that capital gains tax will rise in line with last year’s recommendations from the Office of Tax Simplification.
If this is the case, then capital gains tax could rise from 18% to 20% for basic rate tax payers, and from 28% to 40% for higher rate tax payers. Meanwhile, business rates will not need to be paid until the end of June. From July there will be a two-thirds discount on rates.
There has been no change on income tax rates, but the threshold above which tax is paid is to be frozen. This will likely mean more tax payers qualifying for high tax brackets if earnings continue to grow.
Other Budget Measures Affecting Landlords & Tenants
The flagship furlough scheme has been extended to the end of September, ensuring 80% of salaries are paid to employees who have been furloughed. The £20 Universal Credit uplift has also been extended and will now run for six additional months. The National Living Wage will be increased to £8.91 per hour from April.
Support grants for the self-employed are to continue with a final grant open for claims from late July. The grant will be accessible to 600,000 more people than previously. All these measures will help tenants afford their housing costs as the year goes on.
The Chancellor also announced a mortgage guarantee for lenders on 95% mortgages. Lloyds, NatWest, Santander, Barclays and HSBC have all signed up to the scheme already, with Virgin Money set to follow.
According to Rishi Sunak’s Budget speech, the policy is intended to “[give] people who can’t afford a big deposit the chance to buy their own home” and prompt a greater range of high Loan to Value mortgage products to be brought to market.
But without a significant increase in the number of new homes, the scheme is likely to continue to inflate house prices even further. This is because the guaranteed mortgages will give more people access to the huge amounts of debt needed to buy a home, adding to the number of buyers on the market without adding to the total number of homes available. Therefore there will be more competition for each home, keeping prices high.
Tax Day Announcements
Further major announcements on UK tax policy will be announced on 23 March 2021. We will add a landlord summary here shortly after.
Just couple of quick clarifications…
The increase in corporation tax will by no means affect all landlords letting through a limited company.
The 25% rate will apply only to companies with taxable profits over £250,000.
For companies with taxable profits of less than £50,000, the tax rate will remain at 19%.
For those with profits between £50,000 and £250,000, the official tax rate will be 25% but there will be marginal relief such that the tax rate ramps up from 19% to 25% over the £200,000 profit band (which means that profits between £50,000 and £250,000 are effectively taxed at 26.5%).
So, for example, if your profit is £100,000, your total tax due will be £22,750, an effective rate of 22.75%.
Also, on business rates, the holiday only applies (and has ever applied) to those in retail, leisure and hospitality.
Not touched on here at all is the effect on future btl mortgage applications on people who have taken any govt COVID support.