Spring Budget 2017 – damp squib for landlords, or quiet before the storm?

Big Ben and the Houses of Parliament

Chancellor Phillip Hammond used his first and last Spring Budget to outline the government’s plans to steer the United Kingdom through the choppy Brexit waters, while making it a fiscally responsible, yet business friendly, country.

Hammond spoke of how the UK economy had grown at a faster rate than previous post-Brexit forecasts had anticipated, with revisions massively upped from 1.4% to 2% which he feels places the UK in a better position to weather the impending economic storm that the triggering of Article 50 will bring.

The Chancellor revealed that the UK was the second-fastest growing economy in the G7 in 2016. However, the country’s Gross Domestic Product (GDP) growth has been downgraded from previous forecasts to 1.6% for 2017/18, 1.7% for 2018/19, 1.9% for 2019/20 and finally at 2% in 2021-22.

No relief for beleaguered landlords

Despite the fanfare surrounding the Housing White Paper in February, there was no mention of any policy changes or even acknowledgement that the government planned to use this budget to help the broken housing market.

While several key industry bodies, including the Residential Landlord Association, National Landlord Association and Royal Institution of Chartered Surveyors had called on Hammond to reduce the Stamp Duty levy on additional homes, there was no reprieve to that in the budget; unsurprising given the £1billion of additional income raked in by the treasury in just under a year.

The Chancellor, although not directly referencing landlords who have taken advantage of a limited company structure before April’s incoming mortgage interest tax relief legislation, did made reference to HMRC losing significant revenue through the what he called the “proliferation of incorporation.”

While it is too early to tell if Hammond plans to clamp down on landlords who have incorporated in the future, for now, he has sent a thinly veiled message that the treasury is keeping an eye on the lost revenue.

There are three areas that landlords, especially those who are operating as a limited company or LLP (Limited Liability Partnership), may be interested in:

Key areas of the Spring Budget for Landlords

  • Reduction in tax-free allowance on share dividends from £5,000 to £2,000 from April 2018.
  • Corporation Tax will fall to 19% from April 2017. In 2020 it will be reduced again to 17%.
  • Small businesses and landlords under the VAT threshold will have an extra year to prepare for ‘Making Tax Digital’ (MTD).

Tax-free allowance on share dividends

Tax-free allowance on share dividends, paid by companies to their shareholders will be reduced from £5,000 to £2,000 per year from April 2018. This will affect landlords who operate through limited companies or LLP’s and use this as a source of income instead of or in combination with taking a salary.

We recommend that you speak to a qualified tax professional if you are unsure of the implications of this change.

Incorporation

For those landlords who have turned to incorporation, the level of Corporation Tax you will pay from April 2017 will decrease by 1% to 19%. While this is not a major announcement for landlords, those who have already turned to an incorporated structure, will save a little more in tax from April.

The tax will also reduce again in 2020 to 17%, meaning further savings in tax paid for landlords who had made the change to incorporation.  

Making Tax Digital (MTD)

Unincorporated businesses (businesses owned privately by one or more people) that have an annual turnover below the £83,000 VAT registration threshold, have been granted a temporary reprieve on the incoming digitisation of their tax returns.

Previously stated for launch in April 2018, it has been pushed back to April 2019 in order for those affected to prepare for the mandatory requirement.

The planned ‘Making Tax Digital’ rollout from the government is designed with 4 key objectives in mind:

  • To give individuals and businesses their own personalised digital tax account, and see the information that HMRC holds, and be able to check at any time that their details are complete and correct.
  • Tax in real time. HMRC will collect and process information supplied as close to real time as possible, resulting in quicker resolution of errors and to stop tax due or repayments building up.
  • The long term goal by 2020 is to enable taxpayers to see a ‘single comprehensive picture’ of their finances in one place, in a similar way as online banking.
  • Taxpayers can interact with HMRC at a time to suit them, and access support and advice through online webchat and secure messaging. 

For more information on Making Tax Digital, visit the government’s Making Tax Digital page.

In terms of MTD’s effect on landlords, instead of having to fill out and return a yearly self-assessment tax form to HMRC, you will be required to send one back every quarter using an online portal.

If you currently use an accountant for your tax returns, you may end up having to use their services four times a year, as opposed to once a year, resulting in greater costs to yourself.

For landlords who use alternative methods for self-assessment form to return their taxes, such as paper forms, you will still be able to do so as HMRC have said that: “There is no question of forcing those who cannot go digital to do so. HMRC will ensure that there are alternatives for those who genuinely need them.”

If you are unsure of your current or future tax obligations, speak to a qualified tax professional.

What will this mean for landlords?

In real terms, there have not been any wholesale changes for landlords. The ‘Making Tax Digital’ rollout, which has been put back by a year, will be welcomed by many, who saw the mandatory scheme as costly and time consuming.

Our chief executive, Andrew Turner had this to say:

“This Budget has little impact for UK landlords.

The change to the tax free allowance on dividends, whilst not helpful to those looking to incorporate, is not in the same league as the three percent hike on Stamp Duty.

If the government was intent on inhibiting individuals planning on incorporation, they would have matched the tax obligations of limited companies to that of individuals, which has not happened.

Whilst landlords who have one or two properties may reconsider incorporation, professional portfolio landlords will not be put off by this change in my view.”

Other highlights of 2017 Spring Budget

Social

  • The national living wage will rise to £7.50 in April 2017.
  • £5m fund to help parents (predominantly mothers) returning to work after a long career break
  • Pledge to spend £20m on tackling domestic violence and abuse
  • £2bn for adult social care over the next three years
  • £425m investment in the NHS in the next three years

Economical

  • Lower-rate tax payers personal allowance will rise to £11,500 from April 2017
  • Self-employed class 4 National Insurance Contributions (NICs) will increase from 9% to 10% in 2018, with a further 1% increase to 11% in 2019.
  • Higher tax rate threshold will rise from £43,001 to £45,000 from April 2017
  • Plans to help the North Sea oil and gas industry though tax incentives to keep longevity in the industry
  • £435m to support businesses affected by the business rates relief revaluation

Savings

  • A three-year NS&I Investment Bond with a market-leading interest rate of 2.2% for anyone over 16, will be available from April 2017 for 12 months. The maximum that can be saved in it is capped at £3,000
  • The Lifetime ISA will be available from 6th April 2017. It allows young adults to save up to £4,000 a year, with bonus top-ups of up to £1,000 on the contributions.

For a full breakdown of the 2017 Spring Budget, visit the GOV.UK website.

This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.

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