Income tax update and changes for buy-to-let
With the 2022/23 tax year fast approaching, it is a useful time to review the current tax position and recent changes for buy-to-let landlords ahead of the new tax year beginning on April 6th, 2022.
■ Buy-to-let income tax rates 2022/23. So, what exactly are the individual income tax rates and bands for 2022/23? Your personal allowance is the amount you can earn before you start paying income tax.
Currently this remains at £12,570, the same as 2021/22, and is set to remain at this level until 2026. For the 2022/23 tax year, landlords will pay 20 per cent tax on buy-to-let income between £12,571 and £50,270.
Similarly, the higher rate threshold for rental income remains at £50,271, which is the point at which you start paying 40 per cent tax on your profits and the additional rate, 45 per cent, threshold remains unchanged at £150,000.
■ Time to pay capital gains tax on buy-to-let extended. After several changes in recent years, it was announced in last year’s Autumn Budget that landlords now have 60 days to report and pay capital gains tax when they sell a residential property.
The reporting period has been doubled from 30 days and although it remains well below the maximum 22-month period that was in place before April 2020, it is still a welcome extension given the capital gains tax return reporting process can be a little cumbersome.
There was speculation prior to the Autumn Budget that the Government would increase capital gains tax (CGT) rates after a report by the Office for Tax Simplification. However, it was left unchanged at that point. With this year’s Spring Budget due on March 23, it remains to be seen whether any changes will be made to CGT rates either now or in the future.
■ Five-year anniversary of buy-tolet mortgage tax changes. April 6 2022 marks the fifth anniversary since the mortgage restriction tax changes started, with buy-to-let mortgage tax relief reduced by an additional 25 per cent each year until it reached zero in 2020-21.
For the 2022/23 tax year, landlords will once again get a 20 per cent tax credit on interest payments instead of deducting mortgage expenses from rental income.
In certain circumstances it may be beneficial to set up a limited company when buying a new rental property, as the mortgage restrictions only apply to individuals.
The corporation tax rates are also currently lower at 19 per cent, rather than the higher individual income tax rates, although they are set to increase from April 2023.
■ Making tax digital for VATregistered businesses. From
April 1 2022, landlords with a VAT-registered business with a taxable turnover below the
VAT threshold of £85,000 will need to keep digital records and use accounting software to file their tax return.
■ All Self-Assessment landlords with gross business and/or property rental income over £10,000 will need to comply with Making Tax Digital for income tax from April 2024.
■ Buy-to-let stamp duty rates return to normal. In response to the Covid-19 pandemic, the government introduced a stamp duty holiday back in July 2020. This was in place until October 2021, at which point stamp duty rates returned to normal. This means landlords who buy properties in the new 2022/23 tax year will need to pay normal stamp duty land tax rates, plus 3 per cent surcharge for second homes and buy-to-let properties.