What do the U-turns mean for residential landlords?

A number of the changes announced by Kwasi Kwarteng in the mini-Budget on 23 September were reversed in the week prior to the Emergency Statement made by the current Chancellor, Jeremy Hunt on 17 October.

The mini-Budget included many tax breaks for tax payers in general. Although the reliefs were not specifically aimed at landlords, some of the tax breaks announced would have helped to reduce the tax burden for residential landlords. Below we have outlined the changes that could potentially impact residential landlords.

• Confirmation of the planned corporation tax rate increase: This means the rate will increase from 19% to 25% in April 2023. The lower rate of 19% will still apply to small profits (within £50,000) with a sliding scale for larger companies with the new full rate of 25% being paid by those companies with profits over £250,000.
• Reduction in Stamp Duty Land Tax (SDLT): This was announced in the mini budget and remains on course to be delivered despite the changes for other taxes. For those looking to grow their portfolios, the reduction in SDLT due to the increase in the nil rate band from £125,000 to £250,000 will mean less SDLT is payable on the purchase of property, although the 3% surcharge for additional property remains.
• Multiple Dwellings Relief (MDR): There has been a suggestion that Multiple Dwellings Relief (MDR) may be reformed but this was not specifically mentioned in the announcement, so for now MDR and other SDLT reliefs remain, easing the tax charge for those purchasing multiple properties at once.
• No longer - the reduction in the Basic Rate of income tax: The 1% reduction from 20% to 19% from April 2023 has been cancelled and the rate is to remain at 20%.
• No longer - the abolition of the 45% Additional Rate of income tax: Those currently paying tax at 45% were to see a reduction in the tax rate to 40% from April 2023. This is no longer to be implemented.
• No longer - the reduction of dividend tax: The 1.25% increase to the dividend rates which came into force from April 2022 will remain and not be reversed as previously expected from 6 April 2023.

Incorporation of property businesses

The reduction in SDLT, the silence on MDR and the increase in the rate of Corporation Tax means that the analysis of whether or not to incorporate will be worth revisiting. Over the last few years, property incorporations have eased the tax burden for some landlords with multiple properties. Those not yet incorporated will want to revisit the figures to see whether the costs of incorporation will be worthwhile versus the tax savings.

The future for the private rental sector

While the tax announcement of the SDLT saving is positive news for those looking to acquire more residential property, the tax measures do not see an easing of the tax burden for landlords. The additional costs of running a property portfolio have come about not just from increased tax charges over the last six years, such as the loan interest relief restriction, but also additional legislation and compliance costs. The financial returns have taken a fall for some, which has seen more landlords sell property. We expect that trend to continue, particularly in view of the increasing costs of borrowing.

The sector is likely to see landlords further review and rationalise their portfolios, perhaps to the benefit of the exchequer seeing further increased Capital Gains Tax (CGT) revenue as a result. We expect further changes are necessary if landlords are to feel better supported by government. 

For more information on the issues raised in this article or to discuss your current circumstances get in touch with Mark Stemp or your usual Crowe contact.