Filing the right taxes is very important for homeowners, landlords and investors alike. With the ongoing changes in tax reforms, landlords and property investors need to know the latest rules and regulations when it comes to property taxes. Some of the most important taxes that need to be kept in mind are stamp duty tax, capital gains tax and income tax, as the rules for certain taxes change often.
Case in point, the UK government announced the stamp duty holiday, during the beginning of the Covid-19 pandemic, which was essentially a temporary suspension of the stamp duty tax in order to boost the housing market and the economy as a whole. According to estate agents in Oakwood, there are some important things about UK property taxes in 2022 that landlords and property investors need to know about.
Change in ‘tenant tax’
One major change in tax reforms that property investors and landlords need to know about is the change in Section 24 of the Finance Act 2015, which is also known as the ‘tenant tax’. Basically, Section 24 removed the right of the landlord to deduct the mortgage interest as well as other similar financial costs, such as a mortgage rearrangement fee, from the calculation of rental income before tax liability.
As of 2021, and the years to come, landlords will only be able to claim 20 percent tax credit when it comes to mortgage interest or loans. Basically, mortgage arrangement fees, interest payable on any loans that have been taken out to renovate a property, penalties for early mortgage settlement, and mortgage interest are some of the main costs that can no longer be claimed under Section 24.
Essentially, this major change in Section 24 will put a lot of landlords in a higher tax bracket, which means they will end up paying higher taxes which will thus reduce their profits. Keep in mind, landlords that operate their rentals through a company will not be affected by this change in Section 24. Also, landlords or homeowners who let out their homes as holiday homes will remain unaffected by this change, as of now.
An expected change in capital gains tax
It is expected that Chancellor Rishi Sunak will announce a change in capital gains tax in autumn. The government will attempt to recheck how allowances, reliefs, exemptions, and the treatment of losses are treated under the capital gains tax, in an attempt to make it simpler.
This will have a major impact on property investors, as property investments make up a decent portion of the total capital gains revenue. However, one thing that has changed is that the capital gains tax must be paid within 60 days of the sale of a property.
It is expected that the government and HMRC will not be very tolerant of late payments and missed deadlines. Hence, property investors, landlords, and sellers should ensure that they pay the capital gains tax within 60 days of selling a property.
Change in VAT for to-let holiday homes
In the previous year, the UK government reduced the
VAT rate to 5 percent. Initially, the VAT rate was 20 percent, which was then cut down to 5 percent for hospitality and tourism services. This list included hotels, home rentals, to-let holiday homes, holiday accommodations, cafes and pubs, theatres, fairs, concerts, and so on.
Essentially, homeowners, property investors, and landlords who owned to-let holiday homes were able to enjoy a tax break thanks to the reduction in VAT. From 30 Sep 2021 up until 30 April 2022, the VAT has been increased to only 12.5 percent, which is still lower than the original tax percentage.
Change in buy-to-let income tax rates
The income you have earned in the year will determine which income tax band you fall under. Income tax bands for rental income are the same as income tax bands for personal income. Currently, a personal income or rental income under £12,570 is not taxable, which means landlords have to pay 0 percent tax.
For buy-to-let income that ranges between £12,571 and £50,270, landlords and property investors have to pay 20 percent of the value as tax. For personal income or rental income between £50,271 and £150,000, investors and landlords will have to pay 40 percent tax on profits. Lastly, for rental income above £150,000, landlords will have to pay 45 percent in tax, which is considered the highest tax band.
Change in stamp duty tax
Initially, the UK government had announced a temporary suspension of the stamp duty holiday. However, as of October 2021, investors and buyers will have to pay the normal stamp duty land tax rates. For properties under £125,000, the stamp duty is 3 percent.
For properties valued between £125,001 and £250,000, the stamp duty is 5 percent, whereas for properties valued between £250,001 and £925,000 the stamp duty tax is 8 percent.
The stamp duty is 13 percent for properties between £925,001 and £1.5 million, while there is a 15 percent stamp duty tax for properties valued above £1.5 million. Second-home buyers, landlords, and property investors will have to pay an additional 3 percent surcharge.
Most experts believe that the HMRC will become strict in 2022. Since 2021 was one of the busiest years for the UK housing market, with the average price of property growing up a whopping 10 percent from November 2020 to November 2021, the number of properties that were bought and sold in the UK within the year were at their peak.
As per data from Zoopla, around 1.5 million properties were sold in 2021! That means, a whopping £473 billion exchanged hands in the UK in 2021 itself. This, it is expected that HMRC will become more strict and certainly more proactive in order to claim the owed property tax.
Since the price of a property in the UK was continuously on the rise, it is obvious that the sale and purchase values were also pretty high. Thus, buyers, sellers, landlords, and investors need to be up to date with the latest changes in tax regulations and tax reforms, as a misstep in filing taxes could lead to hefty penalties for concerned parties.
- About the Author
Alex Grigoryan is a Professional Home Improvement and Lifestyle Writer. He has been in the industry for over 6 years and has been writing for Chique Home Living since 2019. His work has been featured in prestigious blogs such as Spruce Home, Better Homes & Garden, and more.