The government has introduced several tax changes affecting income and profits over the last couple of years. Starting today (6th April), some of these changes will have a significant impact on higher earners and those letting via a limited company.
Here’s a rundown of what you need to know for the new tax year:
For landlords that let properties via a limited company, Corporation Tax rates are increasing from 19% to 25% starting in April 2023 for firms with profits above £250,000. For those with profits between £50,001 and £250,000, profits will be taxed at a graduated rate through marginal relief applied to the 25% rate. Companies making up to £50,000 in profit will continue to be taxed at 19%.
If you receive dividend income from shares, you should be aware that the tax-free allowance is being reduced from £2,000 to £1,000 for the 2023/24 tax year, and then to £500 for the 2024/25 tax year.
The Personal Allowance remains at £12,570 for the third year, meaning you can earn this amount before paying tax. The Chancellor froze the Personal Allowance at the 2021/22 level initially for five years until 2026, which was later extended to 2027/8 in last November's Autumn Statement. With inflation causing the cost of living to rise, the real-world value of your tax-free allowance will continue to fall over the next few years.
Starting in April, the additional rate tax threshold is dropping from £150,000 to £125,140, and earnings over that level will be taxed at 45p.
The CGT tax-free allowance is being reduced from the current £12,300 to £6,000 in the 2023/24 tax year, and then to £3,000 in April 2024. This means anyone with gains above the allowance will have to pay CGT on an additional £9,300 by the 2024/25 tax year, resulting in an extra £1,674 for basic-rate taxpayers and £2,604 for those in the higher-rate bracket.
The introduction of the online-only tax filing system, Making Tax Digital (MTD), has been delayed due to the impact of the pandemic. Self-employed individuals and landlords will have to submit quarterly returns to HMRC via MTD-compatible software from April 6, 2026, if their annual property or business income is more than £50,000, and from April 6, 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.
It’s essential to control your costs and aim to increase your tenants' rent each year to protect your rental profits amidst these tax changes. For more information on allowances, income tax rates, and bands, visit the Gov.UK website.
