My talk at the LLAS Conference on the impact of the pandemic last Thursday included a little speculation on the Budget in the hope that it would set about to aid recovery – and certainly not derail it.
Many business owners will have breathed a sigh of relief as nothing in the budget seems to immediately put that at risk.
In particular, with no major changes to Capital Gains Tax (CGT) as many landlords feared, this weeks budget in some ways might feel like a let off.
It was always unlikely though that any CGT hikes (like those recommended by the Office of Tax Simplification) would be announced or implemented imminently, but I did feel that we might have got a nod to a consultation being announced, perhaps with a view to making changes in 2023 or 2024. This may still come on the 23rd March with the release of ‘tax day’ proposals. At one level this would seem more likely than not, so something to watch out for.
Unsurprisingly, as at least one ‘good news story’, the Stamp Duty cut was extended. This was as much to keep the housing market moving (since 2008 no vote-counting government has wanted to put at risk the Englishman’s castle losing too much in value), but also to help out conveyancing practices. Our SRA regulated conveyancing team have been helping to push 100s of sales through ahead of the deadline, and this will certainly come as a welcome relief for those stuck in buying chains.
The ‘big news’ story is of course that Corporation Tax will be increasing to 25% in 2023. Many landlords that now have limited companies as part of their business structure will see their tax rates increase and the proposal is that landlords (and all close investment companies) will have to pay the full 25% on profits made in their investment companies. For landlords deemed to be running a trading business this will only impact those with at least £50,000 of profits, with a tapering to the full 25% rate on profits above £250,000.
Excluding investment companies from the relief is not a new practice, as this is how similar rules worked in the past. Should this change when the legislation is written into the Finance Bill 2021 I will update this article either way.
Unfortunately this means that many landlords who have incorporated to a limited company (sold their properties to their own limited company) will pay the full 25% on all profits. Landlords in mixed partnership structures on the other hand may still benefit from the tapered rates providing that the business is considered a trading one by HMRC.
For those paying the full rate of 25% and drawing out the money as a dividend, they could see a combined tax rate as high as 53.6%. This would compare to a tax rate of 45% for property held in their own name (not accounting for mortgage interest relief of course) and a rate of 25% for property held as part of a mixed partnership business structure. Restructuring as a business can also help with CGT as well of course.
Whilst most of the changes don’t look too damaging for landlords (it would be hard to see something on the scale of Section 24 repeated), there have been calls for the government to have gone further to support tenants.
Responding to the Budget, Ben Beadle, Chief Executive of the National Residential Landlords Association, who provide a much needed voice for landlords in the indsutry said:
“The Chancellor’s pledge to do whatever it takes to support those affected by the pandemic will ring hollow for thousands of tenants and landlords across the country. The Government has admitted that private tenants have been hardest hit by the pandemic, and figures show that most of those in arrears are unable to access emergency housing support from local authorities. Despite this the Chancellor has failed to provide the sector with the financial support needed to pay off rent debts built as a consequence of the virus. Without help to get arrears cleared, many tenants face the prospect of losing their homes and having damaged credit scores, which will undermine the Government’s efforts to help generation rent become generation buy.” https://www.nrla.org.uk/news/chancellors-words-ring-hollow-for-landlords
For those landlords who have been the hardest hit, I imagine that the Chancellors words will indeed ring hollow. I just hope that they can take some comfort in the billions of pounds committed to extending the furlough scheme and self-employment grants amongst other measures which will undobutedly help keep tenants in jobs and paying rents.
Meanwhile, if you haven’t had a chance yet to fully digest this and the other details of the budget in full, you can download this PDF guide from our Accountants with the key points, the detail of which is also included below.
You can also watch Chris Bailey, Co-Founder and Group Director of Less Tax 4 Landlords and director of SKS Business Services summarises the 2021 Budget Summary in the following video:
SKS Bailey Group Budget Summary 2021 – Key Points
Measures to mitigate the impact of Coronavirus
• Extension of the Coronavirus Job Support Scheme (‘furlough payments’) to September 2021 across the UK, with employer contributions to salary from July
• Fourth Self Employment Income Support Scheme grant covering February to April 2021 to claim from late April, similar to first three grants – and newly self-employed people who filed 2019/20 tax returns by 2 March may be eligible to claim for the first time
• Fifth Self Employment Income Support Scheme grant covering May to September to be claimed from late July, varying in amount according to the fall in turnover during the pandemic
• No further support announced for people working as directors through their own personal companies
• 6-month extension of the £20 per week Universal Credit uplift, with an equivalent £500 grant to eligible Working Tax Credit claimants
• Range of ‘Restart’ grants for businesses reopening after lockdown
• Recovery Loan Scheme from 6 April 2021: government to guarantee 80% of eligible loans from £25,000 to £10 million to give lenders confidence to support UK businesses, with some other loan schemes coming to an end on 31 March 2021
• Business rates holiday for eligible retail, hospitality and leisure premises in England continues for first 3 months of 2020/21, followed by a 66% discount for the rest of the year
• 5% reduced rate of VAT for hospitality and leisure industry extended from 1 April to 30 September 2021, followed by 12.5% intermediate rate to 31 March 2022
• Nil rate of Stamp Duty Land Tax on property transactions up to £500,000 extended from 31 March to 30 June 2021, with £250,000 threshold up to 30 September 2021
• Duties on alcoholic drinks and fuel frozen for the second year running
Tax year 2021/22
• Small increases in main Personal Allowance, Basic Rate Band and National Insurance thresholds confirmed, as already announced
• Lifetime Allowance for tax-advantaged pension funds, Inheritance Tax nil rate band, Capital Gains Tax annual exempt amount, ISA subscription limits all frozen at 2020/21 levels
• No increase in CGT rates announced, contrary to some speculation in advance
• Corporation Tax rate remains 19% until 31 March 2023
• New ‘super-deduction’ for investment by companies: 130% of qualifying expenditure on general plant for two years from 1 April 2021 can be deducted from taxable profit (50% for ‘special rate’ assets, and cars are excluded)
• Trading losses (up to £2 million) for companies and self-employed businesses to be carried
back up to 3 years instead of the usual 12 months, making it possible to set current losses
against pre-pandemic profits to obtain a repayment
• Cap on Research and Development claims: payable tax credit not to exceed £20,000 plus
three times PAYE & NIC liability
• No significant changes announced to ‘off-payroll working’ (IR35) rules, which will apply to
large and medium-sized private sector employers from 6 April 2021, as previously
Tax measures coming into effect later
• Personal allowances and income tax rate thresholds frozen at 2021/22 levels until the end of
• Lifetime Allowance for tax-advantaged pension funds, Inheritance Tax nil rate band and
Capital Gains Tax annual exempt amount all frozen at their current levels until the end of
• VAT registration threshold fixed at current level of £85,000 until 31 March 2024
• Corporation tax rate on profits over £250,000 to increase to 25% from 1 April 2023, with the
current 19% rate applying to profits below £50,000 and a tapering calculation on profits
between £50,000 and £250,000
• Establishment of ‘Freeports’ enjoying significant tax breaks announced in 8 areas of England,
with further areas to be discussed with devolved administrations
IMPORTANT NOTE: Please note that none of the content in any of our videos or on our website should be considered advice and is meant for illustration purposes only.
Estate, tax and business planning is a complicated subject and no two clients circumstances are the same; the impact on your situation will depend upon your individual circumstances and you should always seek advice before taking action or deciding not to act at all.
With thanks to LT4L Co-founder Chris Bailey and the SKS Bailey Group for providing this information.
You can see the source of all Budget Information on the government website at https://www.gov.uk/government/publications/budget-2021-documents
UPDATES TO ARTICLE
8th March 2021: Updated to clarify government proposals that close investment companies will face the 25% corporation tax rate regardless of the level of profits
As a founding member of Less Tax 4 Landlords and member of our Operational Board, Ben helps coordinate a wide range of services and insights for the PRS.
With an entrepreneurial background in business growth, sales and marketing strategy; his main claim to fame around here is having come up with the company name back in 2015.
He also works closely with experts across the wider financial and professional services industries through his capacity as co-owner and Director of one of the three Less Tax 4 Landlords founding companies; The Key 2 Growth Ltd.