Softly, Softly Tax Rises Hammer Landlords
Landlords will become poorer despite the raft of new policies announced by Chancellor Jeremy Hunt in his Budget 2023.
Heralded as a budget for growth, Hunt did not mention impending personal and capital gains tax rises that would erode any financial benefit generated by his plans.
Last autumn, he changed the income thresholds at which higher rate taxes are paid.
Although tax rates will stay the same until April 2026 for zero-rate and basic-rate taxpayers, everyone on the top tax rates will pay more as the thresholds change.
The good news is inflation is coming under control, dropping from 10.9 per cent in December to 2.9 per cent by the end of the year. However, analysts and the Treasury agree the fall in the cost of living has more to do with global factors than government intervention.
Much of the Chancellor’s speech involved new policies designed to get disabled people, those on benefits, those aged 50 to 70 without a job and families seeking childcare back to work.
Labour leader Keir Starmer branded the Budget as a ‘sticking plaster’ for an economy needing major surgery and a missed opportunity.
He said: “This was a day for ambition, for bringing us together with purpose and intent, for unlocking the pride that is in every community, matching their belief in the possibilities of the future. But after today, we know the Tory cupboard is bare.”
Income tax rates 2023/24
Up to £12,570
£12,571 - £50,270
£50,271 - £149,999
£50,271 - £125,139
It’s not only income tax thresholds that are changing.
From April 6, the annual exempt amount (AEA) for capital gains tax changes, too. The allowance is similar to the zero-rated personal allowance for income tax to set the amount someone selling an asset can make before paying CGT.
CGT rates 2023/24
The rate halves from the current £12,300 to £6,000 for the 2023/24 tax year and then halves again in April 2024 to £3,000.
Although landlords do not pay CGT when selling their homes, tax is due on selling land or investment property; the rate is 10 or 20 per cent for commercial property disposals and 18 or 28 per cent for residential disposals.
Basic rate taxpayers pay the lower CGT rate, while higher or additional rate taxpayers pay the highest rate.
Corporation Tax 2023/24
For landlords running their property business through a company, April also marks another change in tax rates.
The primary corporation tax rate for the most significant 10 per cent of companies rises to 25 per cent, but most landlords will continue to pay a lower rate. The trigger to pay the higher rate is earning a profit of £250,000, while those with earnings of £30,000 to £249,999 will pay between 19 per cent and 25 per cent on a sliding scale.
The most significant Budget 2023 change for company finances is a new capital allowances scheme that lets companies set off the entire cost of plant, machinery and IT equipment against profits in the year the asset was bought.
However, this only covers equipment like garden tools or ladders across a portfolio of properties rather than items like white goods or furnishings in a specific home.
"The full capital expensing policy means companies can deduct investment spending from profits, meaning they have to pay lower amounts of corporation tax,” the Chancellor said.
“The measure will last for three years, but the government hopes to make it permanent as soon as we can responsibly do so.”
Pension savings cap abolished
Another fillip for the high paid but meaningless measure for the average worker or landlord.
The policy involves three changes:
- The allowance that limits savings into a pension rises from £40,000 to £60,000 a year
- The £1.073 million lifetime allowance (LTA) that covers how much someone can save into a pension is scrapped. The LTA was due to last until April 2026 but will now go by April 2024.
- The money purchase allowance, which dictates how much someone can save into a pension once they have withdrawn some cash, rises from £4,000 to £10,000 a year.
However, as rent is not pensionable income, the policy changes do not help property investors.
Also, the rule changes only apply to private pensions, not those in the public sector or civil service.
Other key Budget changes
In his hour-long speech, the Chancellor announced several other policies to MPs, including:
- Fuel duty is frozen for another year, maintaining a long-standing 5p cut until April 2024
- Alcohol duties are to rise in August in line with the cost of living, except for beer, cider and wine sold in pubs
- The price of cigarettes will rise by the rate of inflation plus two per cent, while hand-rolling tobacco will go up by inflation plus six per cent.
- The government will continue the £2,500 peg on energy bills until the end of June.
- Homes with pre-payment meters will see their energy charges in line with those paying by direct debit.
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