Landlords are facing a number of tax changes in 2022, and we’ve put together a round-up of these to ensure that you know exactly what to expect as a buy-to-let property owner. From tax relief to capital gains, you’ll find out all you need to know in our handy guide.
Buy-to-let income tax changes
As a landlord, you’ll be required to pay income tax on any rental income that you make during the tax year. This includes the property rental payments themselves and any fees you charge for additional services, such as the rental of furniture or payment of utility bills. You work out this income by adding up all profits and taking away allowances and expenses – the amount that’s left is what you’ll pay income tax on.
Buy-to-let income personal allowance, the amount that you can earn before paying tax, has seen an increase of £70 since last year, taking it up to £12,570 – and this is set to stay the same for the next 5 years. For income between £12,571 and £50,270, you’ll be required to pay 20% tax, and you’ll need to pay 40% tax on rental income between £50,271 and £150,000. Any rental income over £150,000 will require a 45% tax payment.
Capital gains tax changes
You pay capital gains tax when you make a profit on selling a property that isn’t your home, which includes buy-to-let properties.
The time you have to report and pay capital gains tax on selling a buy-to-let property has doubled to 60 days from 30 days. Before April 2020, this period was a much longer 22-months, but there’s no hint that it may be extended to this again for now.
Buy-to-let mortgage tax relief
Before April 2020, landlords could deduct mortgage expenses from their property income to reduce their tax bills, but since then you are no longer able to do this. Instead, you can receive a tax credit based on 20% of your buy-to-let mortgage interest payments. This change has increased tax payments for landlords in the higher tax bracket in particular. This is because they used to be able to claim 40% tax relief on their mortgage payments before this change came into effect.
Making Tax Digital for landlords
Any landlords with a VAT registered business with a taxable turnover below the VAT threshold of £85,000 will be required to keep digital records using accounting software from April this year as part of the government’s Making Tax Digital programme. This is to help people to gain more visibility over their finances and enable them to spot potential issues and make better decisions.
Many Self-Assessment taxpayers will need to comply with Making Tax Digital from April 2024 too, and this will include landlords with a rental income exceeding £10,000 per year.
To comply with Making Tax digital as a landlord, you’ll need to ensure that you have the correct accounting software for storing your records. These records will need to be kept for a certain amount of time after the tax year ends, as per government requirements. At the moment, this period is five years. There may be specific Making Tax Digital functionality within your software that needs activating, so you should check this in advance.
Stamp duty on buy-to-let properties
In July 2020, the government introduced a stamp duty holiday in which many people, including landlords, could purchase properties with reduced stamp duty rates. This was in place until October 2021, but now you’ll be required to pay the original stamp duty tax again should you wish to purchase a new buy-to-let property.
The amount of stamp duty you’ll pay depends on the price of the property you’re buying, and you’ll pay 3% on top of the normal buy-to-let stamp duty land tax rate. For example, if you were to buy a property for less than £125,000 to live in yourself, you wouldn’t pay any stamp duty – but to buy this as a landlord you’d pay 3%.
Now that you’re aware of these tax changes for landlords in 2022, you know exactly what to expect when it comes to your tax requirements this year. At Choice Mortgage Solutions, we’re on-hand to help you with any questions you have about your buy-to-let mortgage or remortgage, so please do contact us today with your enquiries.