Changes For Landlords in The New Tax Year

In the latest news from the property sector this week, it’s estimated that around 140,000 landlords that bought buy-to-let property in the 1990’s have sold them in the last year.

As they approach retirement age, a whole generation of landlords with buy-to-let properties are selling up, meaning there are even less properties on the market for renters. With rising interest rates putting off buy-to-let buyers, younger landlords are finding it increasingly difficult to invest in a rental property.

Age was obviously the main reason for the exodus – a lot of people invest in property to provide retirement income, often using their pensions to fund the purchase. However, other factors have come into play including lower ROIs, the economy and profits being squeezed through tax and regulatory changes.

Although property investment generally makes a good profit, a lot of older landlords have long-term tenants that provide relatively low returns. Positive news is that new buyers of buy-to-let properties can rent them out at higher rates than they have done historically, tallying up with inflation across the board.

Research found that over 90,000 landlords turn 65 each year across the UK. This is in addition to over 900,000 who were already aged over 65. But between 2010 and 2022, the number of landlords retiring annually has doubled.

If you are interested in property and are looking for your next buy-to-let, there are so many reasons as to why it’s still a great investment. A lot of landlords who are now selling up will have achieved a great return on the property they bought back in the 1990s. Although house prices are higher now, significant capital gains can still be achieved.

So why should you continue to buy BTL properties? And how will this month’s key tax changes affect landlords now we’ve entered the 2023/24 tax year? Let’s take a look.

Dividend Allowance Reduced

If you operate through a limited company and receive dividend income, the tax-free dividend allowance has been slashed from £2,000 to £1,000 for the 2023/24 tax year. In a further unpopular change, the Government has also announced that for the 2024/25 tax year it will be reduced further to just £500.

Top Rate Tax Threshold Cut

In another unpopular change for the 2023/24 tax year that could impact landlords with large portfolios, the top additional rate tax threshold has been reduced from £150,000 to £125,140 which means an increased number of high earning landlords will be taxed at the higher 45% rate on earnings above the reduced threshold.

Capital Gains Tax Annual Exempt Amount lowered

The Capital Gains Tax (CGT) annual exempt amount has been lowered this month from £12,300 to £6,000. For the 2024/25 tax year it will reduce again to £3,000. For landlords disposing of properties that have increased in value, this will have an impact as they will be paying more tax on any capital gains made above the lower thresholds.

In addition to the above, it is mandatory to report and pay any capital gains tax due on the disposal of any rental properties within 60 days of the completion of the sale. We can assist you with the completion of these forms.

Making Tax Digital Schedule Change

The rollout of Making Tax Digital (MTD), the Government’s digitisation and modernisation programme for the UK tax system, continues but there have been some recent changes. Many landlords will already be familiar with MTD for VAT, but the introduction of MTD for income tax self-assessment (ITSA) for landlords has been delayed by 2 years.

MTD for ITSA will now become mandatory for landlords and the self-employed with an income of more than £50,000 from April 2026. MTD for ITSA will be mandatory for landlords and the self-employed with an income over £30,000 from April 2027.

From these dates affected landlords will need to use MTD-compatible accounting software such as FreeAgent to maintain digital records and provide HMRC with quarterly updates, as well as digitally submitting returns.

Personal Allowance Still £12,570

At the start of each new tax year the Personal Allowance is usually increased to match inflation and maintain the value of the allowance in real terms. For the new 2023/24 tax year, the personal allowance is still £12,570 and it will remain at £12,570 until the 2027/28 tax year. Due to inflation and the increasing cost of living, the value of your tax-free allowance will continue to reduce over time.

Should You Still Purchase Buy-To-let Properties?

The tax changes detailed above will unfortunately have a negative impact on profits for many landlords who may be thinking about increasing rent so tenants cover the increased costs. Changes to stamp duty surcharges for second homes and mortgage impact relief have also affected landlords.

But in certain areas of the UK rental yields can be as high as 8% and are generally above 3% overall. In addition to rental income, if your properties increase in value, capital growth can be achieved. The key here is to keep a close eye on the property market to buy the right properties in the right areas, but with the caveat that the UK property market has experienced fluctuations in recent years.

Getting into buy-to-let takes a significant amount of initial investment. Property will need to be acquired and associated costs including legal fees and stamp duty will need to be paid. Then there’s the cost of ongoing maintenance and repairs to the property and paying an agency to manage tenants if you don’t want to be hands on. It’s important therefore to carefully review your financial situation to ensure you have the capital to purchase and manage the property going forwards.

You should also consider your investment goals. If you’re looking for a quick return, then other investment options would generally be a better choice. But if you want an investment that provides a steady income stream, purchasing buy-to-let property can be a good option.

As expert landlord accountants, Gorilla Accounting will provide you with the right advice and support regarding your buy-to-let business. Get in touch today to speak to one of our property accountants.