Care tax hits landlord directors in pocket
Landlord directors and shareholders face higher tax bills because of an unwelcome twist in the new care tax. Individual landlords escape the 1.25 per cent health and social care levy because they do not pay national insurance on their rental profits. But the new law specifically nets landlord directors and shareholders drawing more than £2,000 of dividends in a tax year from one or more companies.Prime Minister Boris Johnson says the care tax aims to raise £12 billion a year to boost the coffers of the National Health Service and local authorities looking after the frail, long-term sick and elderly.
HM Revenue & Customs will start collecting the levy from April 2022.
How much tax each landlord pays depends on the amount of dividends they receive in a tax year.
For example:
| 1) Tax band | 2) Tax paid on £5,000 dividend at current rates | 3) Tax paid on £5,000 dividend at the new rate | Extra tax |
| Basic rate | £225 | £263 | £38 |
| Higher rate | £975 | £1,013 | £38 |
| Additional rate | £1,143 | £1,181 | £38 |
| Tax paid on £10,000 dividend at current rates | Tax paid on £10,000 dividend at the new rate | ||
| Basic rate | £600 | £700 | £100 |
| Higher rate | £2,600 | £2,700 | £100 |
| Additional rate | £3,048 | £3,148 | £100 |
| Tax paid on £20,000 dividend at current rates | Tax paid on £20,000 dividend at the new rate | ||
| Basic rate | £1,350 | £1,575 | £225 |
| Higher rate | £5,850 | £6,075 | £225 |
| Additional rate | £6,858 | £7,083 | £225 |
Source: AJ Bell
HMRC put off MTD for another year
Making Tax Digital (MTD) doesn’t seem to be working well as a mantra for HM Revenue & Customs (HMRC).
Whitehall mandarins and IT experts have worked on the project since 2015 but keep putting off the start date.
The roll-out was due from April 6, 2023, but HMRC has now put that back to April 2024. The taxman says that’s so proper testing is completed and landlords have more time to hook into the system.
MTD demands landlords earning more than £10,000 a year to keep digital accounting records in a digital format laid down by HMRC. Income and expenses should be reported quarterly on third-party software.
Charity The Low Incomes Tax Reform Group (LITRG) says HMRC needs to better communicate with taxpayers about MTD and to put more effort into developing software.
“Since 2015, we have urged HMRC to produce their own free MTD compliant software for low-income taxpayers, like they currently do for self-assessment,” said spokesman Victoria Todd.
“It is disappointing that HMRC still relies on third-parties to produce free software as free versions are likely to give basic functionality only.
“Those who cannot afford to pay for software are likely to be at a disadvantage as they may not have access to some of the benefits of MTD that users of paid software are likely to enjoy.”
House prices peak as stamp duty holiday ends
As the stamp duty holiday ends on October 1, strong demand from buyers has boosted house prices to a new record high.
From October 1, stamp duty rates return to their normal levels.
Average house prices in England surged seven per cent to £271,000, according to official data from the Office for National Statistics (ONS). However, prices in London were disappointing for the eighth month in a row, posting the lowest regional return in the country with a 2.2 per cent annual increase.
How property prices have changed in England
House prices in London and the South West have grown slowly over the past 12 months.
The ONS data for August shows the North East saw a double-digit increase, while the rest of the country hovered between a six and nine per cent hike in prices.
“As the tax breaks were due to conclude at the end of March 2021, it’s likely March’s average house prices were slightly inflated as buyers rushed to ensure their house purchases were scheduled to complete ahead of this deadline,” said an ONS spokesman.
“This effect was further exaggerated in June 2021, in line with the extension to the holiday on taxes paid on property purchases in England, Wales and Northern Ireland. As a result, average house prices for July returned to similar levels seen earlier in the year.”
Source: ONS
London rent rises slower than rest of UK
While house prices have seen a stamp duty holiday bonanza, rents have hardly moved during the past year.
Data from the ONS shows rents are rising – but have stubbornly stuck at the same level since the start of the year.
Tenant referencing firm Homelet figures are moving at a faster rate but come from a smaller sample.
Homelet says rents are rising the slowest in London and the South East, which had increases of 3.6 per cent and 5.8 per cent in the past 12 months, respectively.
Meanwhile, rents in the South West saw an 11.9 per cent increase and were up by 10.7 per cent in the East Midlands.
Homelet’s head of business intelligence Rob Wishart said: “Typically, rents for new tenancies will rise in line with the rate of inflation, but that hasn’t happened in the past few months. Demand for housing and certain property types outstripped supply in many areas, causing upward pressure on rental prices. We can expect the increase in rents to continue for the foreseeable future.
“We may see London accelerate at a faster rate than the rest of the country in the coming months, as international travel ramps up and rates of working from home move in the opposite direction.”
More for Landlords
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