So much has changed for property tax in the last few years that it’s hard to keep up – with updated reliefs, new reporting requirements, and broader tax changes all affecting landlords and property investors.
We’ve revisited some key changes you should be aware of this year.
Recap: what changed in 2021?
Among other changes, 2021 saw the winding down of the stamp duty relief that was introduced during the coronavirus pandemic to stimulate the housing market.
This means stamp duty land tax is now back at its normal rates, as of 1 October 2021.
The temporary reduction of VAT on holiday lets also came to an end, rising from 5% to 12.5% from 1 October 2021, then returning to the standard 20% rate as of 1 April 2022.
Other changes took effect relating to reporting capital gains tax on the sale of residential properties. A 30-day deadline was initially introduced for this from 6 April 2020, but from 27 October 2021, the time limit was extended to 60 days. If you complete a self-assessment, you’ll still need to report the gain on your return.
Property income tax rates in 2022/23
Income from property is subject to the same rates of income tax as other sources.
This means in 2022/23, you can earn up to the personal allowance of £12,570 before you start paying tax.
You’ll then pay 20% tax on income between £12,571 and £50,270 and 40% on income between £50,271 and £150,000. Above this, the additional rate of 45% applies.
These thresholds are currently frozen, up to and including the 2025/26 tax year.
National Insurance increase
In April this year, National Insurance rates were increased by 1.25 percentage points, and the rate of tax on dividends was increased by the same amount.
This is currently set to become a separate payment under a new ‘health and social care levy’ from 2023/24. Following the recent appointment of Liz Truss as Prime Minister, however, this could all change, as Truss pledged to reverse the increase during her leadership race.
Making Tax Digital for landlords
Last year saw the introduction of compulsory digital tax reporting for VAT under the Government’s Making Tax Digital (MTD) scheme.
This extended its scope in 2022, with all VAT-registered businesses brought into the programme. If your property business is registered for VAT, you should already be following the MTD rules.
Next, the rules will apply to income tax for businesses and landlords.
MTD for income tax self-assessment (ITSA) is due to begin in April 2024, with self-employed people and landlords required to join if their gross trading and property income exceeds £10,000 a year.
If you’re included in the scheme, you’ll need to maintain digital records and send quarterly updates to HMRC using compatible software.
This is something we can help with. Our team will get you up to speed on your cloud software options and help you choose and set up the right platform to meet your obligations and support your property business.
Proposed changes to stamp duty land tax
Following a Government consultation that took place earlier this year, changes could be in store for mixed-property purchases and multiple dwellings relief.
At the moment, if you were to buy a ground floor shop (non-residential) with a flat above (residential), the non-residential rate of stamp duty land tax would apply to the whole property.
As non-residential rates are lower than residential rates, HMRC believes this has led to more people claiming that their purchase counts as mixed-property, even when the majority of it is residential.
The second area HMRC is looking at involves multiple dwellings relief – a tax relief available on the purchase of two or more dwellings. HMRC says it has seen increasing numbers of ‘unreasonable’ claims for this relief, with up to 40% of claims not qualifying.
The consultation looks at various options to solve these two problems, so changes could be on the horizon depending on the outcome of the consultation.
To find out what these changes mean for you, or for more advice on property tax, get in touch.