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Landlords and letting agents are in the front line of those bearing the financial brunt of the cost of tackling the coronavirus pandemic from the Budget 2021.
In his Budget 2021 statement to MPS, Chancellor Rishi Sunak raised Corporation Tax – the tax companies pay on profits.
The rate rise is worrying for thousands of landlords across the south of England. Companies House list nearly 230,000 buy-to-let companies – with a third based in London and half in the capital and the southeast.
From April 1, 2023, Corporation Tax goes up from 19% to 25%. Many landlords sheltered their properties in companies by scrapping mortgage interest relief for higher rate taxpayers.
They thought they were safe only to realise they may have jumped from the frying pan into the fire. The new Corporation Tax will work like this:
“To balance the need to raise revenue with the objective of having an internationally competitive tax system, the rate of Corporation Tax will increase to 25%, which will remain the lowest rate in the G7,” said a Treasury spokesman.
“To support the recovery, the increase will not take effect until 2023. Businesses with profits of £50,000 or less, around 70% of actively trading companies, will continue to be taxed at 19%.
“A tapered rate will also be introduced for profits above £50,000, so that only businesses with profits of £250,000 or greater will be taxed at the full 25% rate.”
To pile the pressure on landlords, the Chancellor has also frozen personal taxes at their current rates for five years. Although the income tax personal allowance and higher rate threshold will rise slightly next year, all the major personal taxes will settle at their current level until April 2026. The personal income tax allowance increases from £70 to £12,570 a year – the amount everyone can earn tax-free.
The level taxpayers start paying at the higher rate rises slightly to £50,570 a year. Inheritance Tax and Capital Gains Tax rates, reliefs and allowances remain at the same level until April 2026.
Holiday cottages and flats gain some extra relief as the Chancellor extends the business rates holiday for three months – to the end of June. From July 1 to March 31, 2022, the relief is reduced to 66%. Special rules apply to properties with a rateable value of more than £12,000.
The stamp duty holiday will last another three months for home buyers in England. Buyers will pay no stamp duty on a home worth up to £500,000 until June 30. Between July 1 and September 30, the relief drops to no stamp duty on homes worth £250,000. From October 1, the threshold is sliced again to £125,000.
The higher rate surcharge for additional properties remains the same – an extra 3% on buy-to-let or holiday let purchases for landlords.
Find out more about Stamp Duty rates
Home buyers who can’t find a house because they cannot raise a deposit have won support from the government. Chancellor Rishi Sunak confirmed cash help with the mortgage guarantee scheme is available until the end of the year (December 31). The deal for home buyers – including movers – is the government will underwrite a 5% deposit worth up to £30,000 on a £600,000 property.
“We want Generation Rent to turn into Generation Buy,” said Mr Sunak.
Find out more about the Mortgage Guarantee Scheme Chancellor Rishi Sunak’s Budget 2021 speech in full
Opposition leader Sir Keir Starmer signalled Labour will support the proposed Corporation Tax increase. Briefing notes appear to instruct Labour MPs to oppose instant tax rises – including a much-discussed increase in capital gains tax that failed to make the final Budget 2021 statement.
“The IMF and the OECD have said now isn’t the time for tax rises. We’re in the middle of a once-in-300-year crisis. Our economy is still shut. Our businesses are on life support,” said Starmer.
“So it’s right that corporation tax isn’t rising this year or next. Of course in the long run corporation tax should go up. The decade-long corporation tax experiment by this government has failed.”
Policy and campaigns manager at the Association of Residential Letting Agents (ARLA) Timothy Douglas said:
“Extending the increase to the Universal Credit Standard Allowance and the furlough scheme until September will help tenants plan ahead but much more is required to avoid a mounting crisis in the private rented sector.
“As the impact of COVID continues to bite and unemployment rates rise, we are increasingly concerned about how tenants will avoid future rent arrears and landlords will remain incentivised to stay in the rental market. There is a real need for the UK Government to ensure a wider package of measures to help tenants and landlords keep the rent flowing.”