What did the Budget mean for landlords?

What did the Budget mean for landlords?

Yesterday’s Budget brought another blow for private rented sector landlords with the announcement that property income tax will be increased by 2% from April 2027. Rising to 22% at the basic rate, 42% at the higher rate and 47% at the additional rate, these increases come on top of new legislation through the Renters’ Rights Act and pending changes to Minimum Energy Efficiency Standards (MEES) by 2030.

However, these rates are applied to profit, not net income, and there are steps you can take to legitimately reduce your taxable income: 

·      The first £1,000 of your income from property is your “property allowance” and is tax free. 

(Anything over £2,500 must be reported to HMRC by a Self-Assessment tax return.)

·      Make the most of your “allowable expenses”.

These are costs related to the day-to-day running of a rental property and include: 

·      Letting agents’ and accountants’ fees 

·      Buildings and contents insurance

·      Maintenance and repairs to the property (but not improvements)

·      Utility bills

·      Rent, ground rent or service charges

·      Council tax

·      Services you pay for, such as cleaning or gardening

·      Other direct costs such as phone calls or advertising

Allowable expenses do not include “capital expenditure”, i.e. money spent on improving or enhancing the property, including the cost of making improvements to meet minimum standards. However, these payments may be eligible for capital allowances or included in your Capital Gains Tax calculation when you sell the property. 

However, you may be able to off-set part of any mixed-purpose works, where the work needed is part-repair and part-upgrade. Here, though, it’s essential to segregate costs on invoices to differentiate between repair and upgrade. Include photos of wear and tear in your records too.

·      “Replacement of domestic items relief”

This is a tax relief on money spent on domestic items such as beds, sofas, curtains, carpets and white goods. These items must have been bought for exclusive use by the tenants and when replaced to no longer be used in that property. 

·      More than one property? Strategically plan high repair/maintenance expenditure periods 

For landlords with more than one property tax is calculated across the portfolio and combined into a single “property business”. This means that profits from one property can be offset against lower yield / loss-making property, which can be useful where there have been void periods or high repair and maintenance costs. Strategically planning when to carry out maintenance, such as replacing the boiler or fitting new like-for-like windows, across your portfolio, can help share this benefit across multiple financial years. 

·      Carry forward any loss to a later year

No landlord wants to make a loss, but where circumstances have had a negative impact on income, it can be reassuring to know that losses can be used against profits in a later tax year.

Tax rules can be tricky and the risk to getting it wrong is high. Aways speak to an FCA-accredited financial adviser when making tax-related decisions about your rental portfolio. However, at Brittons Lettings, we can help you maintain accurate landlord invoices and records relating to maintenance work carried out by our appointed contractors. 

If you have any questions about the Budget or the role we play in managing your rental property, drop us an email, give us a call or pop into our Tuesday Market place office for a chat.