Tax changes from April 2023: what landlords need to know

Allison Thompson, National Lettings Managing Director, Leaders Romans Group, looks at recent changes the government has made with regard to how income and profits are taxed and rounds up what you need to know for this year as a landlord and property investor.

Related topics:  Finance,  Landlords,  Tax
Allison Thompson | Boyer
30th March 2023
Tax Law 444
"If you plan to sell property soon, you must budget for the CGT tax-free allowance to drop significantly over the next two tax years"

Over the last couple of years, the Government has made several changes to tax rules. Some of these will take effect from the new tax year on 6th April, with higher earners and those letting via a limited company most affected.

Corporation Tax is rising for companies with profits above £50,000

If you let your properties via a limited company and have annual profits of more than £50,000, you need to be aware that the rates are rising.

Currently, Corporation Tax is 19%, but this is increasing to 25% from April for companies with profits above £250,000. Profits between £50,001 and £250,000 will be taxed at a graduated rate through marginal relief applied to the 25% rate, while companies making up to £50,000 in profit will continue to be taxed at 19%.

It’s worth noting that the Smart Investment service, powered by GetGround, provides landlords with a limited company to purchase a buy-to-let property. As part of this service, we manage all of the admin, including tax-efficient structuring.

Dividend Allowance reducing

If you receive dividend income from shares, you need to know that the tax-free allowance is being cut from £2,000 to £1,000 for the 2023/24 tax year and then to £500 for the 2024/25 tax year.

Personal Allowance remains at £12,570

While this isn’t a change for 2023, it is a change from the norm. Usually, the Personal Allowance goes up each year to reflect inflation in order to maintain the value of the allowance. But to help recoup some of the money spent on the pandemic, the Chancellor froze the Personal Allowance at the 2021/22 level – initially for five years until 2026, which was extended to 2027/8 in last November’s Autumn Statement.

So, for the third year, the amount you can earn before paying tax in 2023/24 is £12,570. Unfortunately, this means that over the next few years, as the cost of living rises through inflation, the real-world value of your tax-free allowance will continue to fall.

Top rate tax threshold dropping from £150,000 to £125,140

From April, the additional rate tax threshold is dropping to £125,140, and earnings over that level will be taxed at 45p. So those earning over £150,000 will pay 5p more in tax on £24,861 and see their tax bill rise by £1,243.

For more information on allowances, income tax rates, and bands, visit the GOV.UK website.

Capital Gains Tax annual exempt amount being cut

If you plan to sell property soon, you must budget for the CGT tax-free allowance to drop significantly over the next two tax years.

For 2023/24, it’s being reduced from the current £12,300 to £6,000, in April 2024, it will drop again to £3,000. That means for anyone with gains above the allowance, CGT will be payable on an additional £9,300 by the 2024/25 tax year – that’s an extra £1,674 on the tax bill for basic-rate taxpayers and £2,604 more for those in the higher-rate bracket.

Here’s an example of how your tax bill for a gain of £40,000 would change:

Tax year reported 2022/23:
Tax-free £12,300
Taxable £27,700,
Tax at 18% £4,986
Tax at 28% £7,756

Tax year reported 2023/24:
Tax-free £6,000
Taxable £34,000
Tax at 18% £6,120
Tax at 28% £9,520

Tax year reported 2024/25:
Tax-free £3,000
Taxable £37,700,
Tax at 18% £6,660
Tax at 28% £10,360

Finally, here’s one more change to be aware of:

Making Tax Digital (MTD) plan amended

This online-only tax filing system was originally due to take effect in April this year for those who earn over £10,000 and submit Self Assessment returns. However, the planned introduction was delayed by a year due to the impact of the pandemic, and then, in December 2022, the Government changed its plans for MTD again.

As it now stands, self-employed individuals and landlords will have to submit quarterly returns to HMRC via MTD-compatible software:

From 6th April 2026, if their annual property or business income is more than £50,000
From 6th April 2027, if they earn between £30,000 and £50,000

A pilot scheme is already underway, so if your income is above £30,000, it might be worth looking into the available software options and speaking to either your financial adviser or a property tax expert to ensure you’re prepared for when the requirement comes into force.

Those earning under £30,000 will not be required to use the MTD system until a Government review has been completed.

It’s essential to protect your rental profits by controlling your costs and aiming to increase your tenants’ rent each year.

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