Tax changes that landlords should know about

This April marks the start of the 2022/23 UK tax year, while also being the month when HMRC introduces some important changes to a number of different forms of tax. With so much change in the air, it can be difficult to dissect everything that’s going on and work out what will affect you and your business.

We know that, historically, landlords are affected just as much as anyone else by changes to tax regimes, if not more, with changes in policy having a dramatic impact on property owners’ tax bills. With prices rising sharply seemingly across the board, you should be aware of how much more tax you’ll have to pay as a landlord, so that you can better budget for the year ahead. The April 2022 tax changes could also affect income you receive from other sources.

So, what key tax changes are being introduced for the 2022/23 tax year and how could they affect you and other landlords?

National Insurance contributions

As widely reported when announced in the government’s October 2021 Budget, from 6th April 2022, National Insurance contributions (NICs) are increasing by 1.25 percentage points (it’s important to note that this is much higher than a 1.25% increase). The government says the additional revenue will be ringfenced and spent on the NHS and social care in the wake of the Covid-19 pandemic.

Rental income is not subject to NICs unless you’re a professional landlord running a property rental business (ie. being a landlord is your main job, you rent out more than one property and buy new properties to rent out, etc). If you are a professional landlord running a property rental business, currently you must pay NICs if your earnings exceed the Class 2 and Class 4 NIC thresholds.

Obviously, if you’re not a professional landlord but you earn income from other sources upon which you currently pay NICs, for example, if you’re an employee, sole trader or member of an ordinary partnership, your NICs will increase by 1.25 percentage points. If you employ people, such as a handyman or administrator for your property portfolio, your share of their Class 1 NICs will also increase, while any Class 1A and 1B payments employers pay on employee expenses and benefits will also increase.

What about Income Tax for landlords?

Not much will change for landlords when it comes to Income Tax. The personal allowance (ie. the amount upon which no Income Tax is payable) remains at £12,570 a year (ie £1,048 a month or £242 a week). Beyond this figure, in England, Wales and Northern Ireland, 20% Income Tax (ie the basic rate) is payable on taxable earnings between £12,571 and £50,270 a year, then 40% (the higher rate) on £50,271 to £150,000 and 45% on annual earnings over £150,000. The tax rates in Scotland are different, but the personal allowance is the same.

The Chancellor, Rishi Sunak, announced in his 2022 Spring Statement that the basic rate of income tax will be reduced from 20% to 19% in 2024, and when that happens, private landlords who sit in the basic rate band will pay less income tax on money derived from their rental property.

Other tax-related changes for landlords

Tax on dividend income will also increase by 1.25% from 6 April. If you earn any income from dividend payments, after your £2,000 annual allowance, if you’re a basic rate Income Tax payer you’ll pay 8.75% tax on dividend payments (7.5% was the previous percentage). If you’re a higher rate Income Tax payer, from 6 April you’ll pay 33.75% (up from 32.5%) and additional rate Income Tax payers will pay 39.35% (up from 38.1%) on their dividend income.

A reminder that Capital Gains Tax rules changed in October 2021 in a way that could benefit you if you choose to sell property this year. Previously, you would have had just 30 days to report any taxable gains made from the sale of property and pay the CGT you owed to HMRC, but you now have up to 60 days. The same amount of Capital Gains Tax is payable, it’s just that you have twice as much time to report and pay tax on any capital gains.

Making Tax Digital for landlords

From April 1 2022, landlords with a VAT-registered business with a taxable turnover below the VAT threshold of £85,000 will need to comply with Making Tax Digital for VAT requirements. These mean you must maintain digital records using MTD-compatible software and report figures online to HMRC each quarter. More information about Making Tax Digital for VAT is available from HMRC via government website.

It’s still some way off, but all current Self Assessment taxpayers (including private landlords) will need to comply with Making Tax Digital for Income Tax requirements when they are introduced. Beginning in April 2024, This affects any private landlords who currently file self assessment tax returns and will require you to also use MTD-compatible software to maintain digital records of your income and outgoings. You’ll need to send quarterly updates to HMRC online and submit an end-of-period statement and final declaration, so that your tax liability can be calculated. You’ll no longer need to complete a Self Assessment tax return once MTD for Income Tax Self Assessment is introduced.

Tax help for landlords

Even without all the changes to the taxation system coming into effect this month, tax calculations can be a complex and time-consuming job for landlords. Wouldn't it be good to be able to see your income, expenses and tax submission all in one place, meaning you can spend more time working on your property, and less time on paperwork?

Our partners, GoSimpleTax, can provide you with tips that could save you money on allowances and expenses you might have missed.

The software submits directly to HMRC and is the solution for the self-employed, sole traders, landlords and anyone with income outside of PAYE to file their self-assessment giving hints and tips on savings along the way.

GoSimpleTax, which is available on desktop or mobile app, does all the calculations for you, saving you money on accountancy fees.

You may also like:

• What is the dividend tax and how much is it increasing by?
• Allowable expenses for landlords – what can I claim?
• A guide to your responsibilities as a landlord