Mini-Budget 2022: What does it mean for residential landlords

The new Chancellor’s mini-Budget on 23 September included many tax breaks for taxpayers in general. Although the reliefs were not specifically aimed at landlords, some of the tax breaks announced will help reduce the tax burden for residential landlords.

Below we have outlined some of the changes announced and how they could potentially impact residential landlords.

• A reduction in the Basic Rate of income tax
  The 1% reduction from 20% to 19% from April 2023 is welcome news for all taxpayers, and will equally provide a tax benefit to landlords who will see a reduction in the basic rate tax they pay.
  
  
• Abolition of the 45% Additional Rate of income tax 
  Those currently paying tax at 45% will see a reduction in the tax rate to 40% from April 2023. The 45% rate was applicable to those with total earnings from all income sources over £150,000 per year, so will have limited application to only the few that earn over that threshold.
  
  
• Reversal of the planned corporation tax rate increase 
  This means the rate will no longer increase from 19% to 25% in April 2023. While not a tax saving as the increase was never introduced, it is good news to those landlords holding property within companies as the tax on their profits will not increase. 
  
  
• Reduction in Stamp Duty Land Tax (SDLT) 
  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.

Incorporation of property businesses

The reduction in SDLT, the silence on MDR and the comfort of the news that corporation tax is not increasing 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 package of tax announcements is positive news for most residential landlords, it did not provide support specifically for them. 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. Whether the mini-Budget has provided enough of a tax reduction to stop that trend is yet to be seen but 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.