Who will be affected by the Corporation Tax hike in the Budget?

Sajjad Nawaz (pictured) is the owner of Buy to Let Tax Accountants

The Budget wasn’t as bad as landlords feared, given that the rumoured Capital Gains Tax increase didn’t come to pass.

However an increase to Corporation Tax was announced, which will come into force in 2023.

From then businesses with an annual profit more than £50,000 will see their tax rate gradually rise from 19% to 25% at £250,000.

While this may seem like an alarming change, a number of limited company landlords won’t be affected by this development.

The FT has already published an article with the headline ‘Landlords shrug off corporation tax increase’, which rightly points out that the average company landlord doesn’t make enough profit to be stung by this change.

London owners and the HNW will take a hit

That’s not to say the increase to Corporation Tax won’t affect anyone.

Some of the UK’s largest landlords will pay far more tax due to the change.

For owners of properties in more expensive areas, like parts of London for example, this is also likely to be more of a big deal – you don’t need to own many properties somewhere like Wimbledon to make more than £50,000 a year.

For High Net Worth landlords this is another frustrating announcement that’s making it more costly to operate.

High Net Worth buyers who are foreign residents will also have to pay a non-UK buyer 2% stamp duty surcharge when they buy properties from April 1 2021.

Capital Gains Tax

It’s pleasing the government held off from hiking Capital Gains Tax in the Budget.

There were rumours that it would rise from its current level of 28% for higher rate taxpayers to 40%, because that was advised by the government’s Office for Tax Simplification in January, with the review being commissioned by Chancellor Rishi Sunak himself.

Indeed, before the Budget I had clients contact me who were looking to gift their investment properties quickly, because they wanted to avoid paying higher levels of Capital Gains Tax – for older people looking to leave a property to their family, such a big potential tax rise was a big concern.

While I’m heartened the government hasn’t increased Capital Gains Tax, this might be a case of putting off such a change until the economy is in a stronger position, say next year or the year after.

We’ll have to wait and see, but until the government makes a commitment to keep the tax rate at its current level for some time, I’m not complacent about it staying the same.

The government did make one firm pledge however.

There were rumours that the annual exemption on Capital Gains Tax would be lowered from £12,300 to £2,000, but instead the government committed to keeping it the same until 2026 – good news.

Stamp duty holiday extension

While the Capital Gains Tax increase didn’t happen, I’m still taking calls from people looking to pass on their assets quickly.

This is because people are looking for their family to pay lower rates of stamp duty on offer, as the tax is charged on the transfer of ownership of investment properties.

Thankfully the stamp duty holiday extension has given us all some breathing space for a few months.

As has been widely publicised, the relief, where people won’t pay the tax on purchases up to £500,000, has been extended from the end of March to June.

If buyers want to take advantage of the tax relief, I’d recommend for them move as quickly as possible, as the speed in which the housing market operates will likely be slow until the pandemic situation improves.

Summary

The Corporation Tax rise won’t faze everyone, though it will hit our biggest landlords in the pocket, as well as those operating in the most expensive areas.

However we shouldn’t be surprised that the government is looking to increase its tax receipts, given the Treasury has had to fund a substantial outlay on covid measures like the furlough scheme.

While I’m happy Capital Gains Tax has been left alone, I’m not counting my chickens until the government makes a firm announcement on what’s happening with the tax.

Meanwhile the stamp duty holiday extension has brought us all some time, even if it’s only putting off the cliff edge for a few months.

All in all then I think it was a positive Budget for the housing market, which will likely have a strong few months, spurred on by the stamp duty holiday extension.