April tax changes landlords need to be aware of

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Date: 5 April 2022

A landlord hands over the keys to a rental property

April marks the start of the 2022/23 UK tax year. It's also the month when HMRC introduces any important tax changes.

These can affect landlords just as much as other taxpayers - and in some cases they can have a significant impact on your tax bills. With prices rising sharply, seemingly across the board, you should be aware of how much more tax you'll have to pay as a landlord, so you can budget for the year ahead. The April 2022 tax changes could also affect income you receive from other sources.

So, what key tax changes are being introduced for the 2022/23 tax year and how could they affect you and other landlords?

National Insurance contributions

As widely reported when announced in the October 2021 Budget, National Insurance contributions (NICs) will increase by 1.25 percentage points (which is much higher than a 1.25% increase) from 6 April 2022. The government says the additional tax revenue will be spent on the NHS and social care.

Rental income is not subject to NICs unless you're a professional landlord running a property rental business (ie being a landlord is your main job, you rent out more than one property and buy new properties to rent out, etc). If you are a professional landlord running a property rental business, currently you must pay NICs if your earnings exceed the Class 2 and Class 4 NIC thresholds.

Obviously, if you're not a professional landlord but you earn income from other sources upon which you currently pay NICs (for example, as an employee, sole trader or member of an ordinary partnership), your NICs will increase by 1.25 percentage points. If you employ people, your share of their Class 1 NICs will also increase, while any Class 1A and 1B payments employers pay on employee expenses and benefits will also increase.

What about income tax?

Not much will change when it comes to income tax. The personal allowance (ie the amount upon which no income tax is payable) remains at £12,570 a year (£1,048 a month or £242 a week). Beyond this figure, in England, Wales and Northern Ireland, basic rate income tax is payable at 20% on taxable earnings between £12,571 and £50,270 a year, then 40% on earnings between £50,271 to £150,000 and 45% on earnings over £150,000. The tax rates in Scotland are different, but the personal allowance is the same.

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Other tax-related changes for landlords

Tax on dividend income will also increase by 1.25% from 6 April. If you earn any income from dividend payments, you'll pay 8.75% tax on income over your £2,000 annual allowance if you're a basic rate tax payer (33.75% or 38.1% respectively for higher and additional rate tax payers).

Remember, Capital Gains Tax rules changed in October 2021 in a way that could benefit you if you choose to sell property this year. Previously, you would have had just 30 days to report any taxable gains made from the sale of property and pay the CGT you owed to HMRC. You now have up to 60 days to report and pay the Capital Gains Tax is payable (twice as long as usual).

Making Tax Digital for landlords

Making Tax Digital for VAT has being extended from 1 April 2022. Previously the rules only applied to those businesses with taxable turnover over the VAT registration threshold. It now applies to all VAT-registered. This means you must maintain digital records using MTD-compatible software and report figures online to HMRC each quarter. More information about Making Tax Digital for VAT is available from HMRC via government website GOV.UK.

Eventually, Making Tax Digital for Income Tax will be extended to all self assessment taxpayers. From April 2024, you will need to use MTD-compatible software to maintain digital records of your income and outgoings. You'll need to submit quarterly updates online to HMRC and submit an end-of-period statement and final declaration so that your tax liability can be calculated. You'll no longer need to complete a self assessment tax return once MTD for Income Tax Self Assessment is introduced. 

Sponsored post. Copyright 2022. Featured article by Mike Parkes of GoSimpleTax - tax return software that can help you manage your self assessment.

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