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Mini-Budget 2022: What It Means for Landlords

New chancellor Kwasi Kwarteng announced a controversial package of tax cuts in his emergency mini-budget, including a permanent reduction in stamp duty, the lowering of income tax, and a corporation tax freeze.

In his statement on 23 September, the first of Liz Truss’s premiership, the new chancellor unveiled a sweeping package of measures that the government said it hopes will help stimulate economic growth in the midst of the UK’s current cost of living crisis.

But while some of the announcements put extra money into landlords’ pockets, this is largely being offset by the current uncertainty over interest rates and the significant extra costs landlords are facing on their monthly mortgage repayments.

Indeed, the plans have proved highly controversial, with the Pound plummeting in value since the announcement and some lenders even pulling mortgage deals as the threat of more interest rate rises looms.

What Was Announced?

In the property world, the headline figure is the raising of the stamp duty threshold to £250,000, or £425,000 for first-time buyers. However, the existing 3% surcharge on second properties, including buy-to-let purchases, will remain.

Meanwhile, the basic rate of income tax will fall from 20p to 19p next April, while the top 45% rate of tax for the highest earners will be abolished. As expected, next year’s increase in National Insurance will be scrapped, and the planned rise in corporation tax will also be cancelled and remain at the current rate of 19%.

Speaking about the package, Chancellor Kwarteng said:

“Economic growth isn’t some academic term with no connection to the real world. It means more jobs, higher pay and more money to fund public services, like schools and the NHS.

“This will not happen overnight but the tax cuts and reforms I’ve announced today – the biggest package in generations – send a clear signal that growth is our priority.

“Cuts to stamp duty will get the housing market moving and support first-time buyers to put down roots. New Investment Zones will bring business investment and release land for new homes in communities across the country. And we’re accelerating new road, rail and energy projects by removing restrictions that have slowed down progress for too long.

“We want businesses to invest in the UK, we want the brightest and the best to work here and we want better living standards for everyone.”

What Does the Mini-Budget 2022 Mean for Landlords?

Although some of the announcements may be welcomed by landlords, this is a worrying time for buy-to-let investors up and down the country. Soaring interest rates and the threat of more significant rises to come means landlords are facing ever increasing monthly mortgage repayments, which is having a serious impact on traditional buy-to-let investments.

Some also argue that the government could have gone further when it comes to offering tax relief to landlords. Many hoped to see the reversal of Section 24 rules, which mean landlords now pay income tax on all property earnings and can only claim up to the 20% basic rate back in tax relief, but this was not announced in the chancellor’s statement.

Stamp Duty Cut

Part of the package included the unveiling of a permanent reduction in stamp duty, which it is hoped will stimulate the market, increase demand, and get more first-time buyers onto the housing ladder. Effective immediately, the threshold at which stamp duty is payable has risen from £125,000 to £250,000 – or £425,000 for first time buyers.

While the new threshold is applicable to buy-to-let properties, the existing additional three per cent stamp duty surcharge on all second home purchases will remain. This means landlords will pay 3% stamp duty on properties bought for up to £250,000, and 8% on properties of between £250,001 and £925,000, rising to 13% on homes up to £1.5 million. For properties worth more than £1.5 million, landlords will pay 15%.

Some experts have warned that it could artificially inflate prices. However, as the change is permanent and not just temporary as was the case with the stamp duty holiday introduced during the pandemic, it is hoped demand will rise more gradually.

The cut in stamp duty will be welcomed by landlords looking to expand their portfolios, although higher demand could also push up prices. For those looking to sell, it may make it easier to find a buyer and sell for a higher price.

Tax Cuts Help Corporate and Private Landlords

While there was no direct relief, landlords will benefit from the lowering of the basic rate of income tax and scrapping of next year’s planned National Insurance increase.

Meanwhile, landlords who own properties through a limited company will welcome the freezing of corporation tax at 19 per cent, with the previous plan to raise it to 25 per cent next April scrapped entirely.

Will Landlords Get More Support?

Private landlords continue to face challenges in the face of rising interest rates, increased costs and the burden of increasing legislation. The current mortgage chaos and threat of even higher interest rates is certainly concerning, meaning investors may be well advised to avoid lenders at the present time and seek alternative investment opportunities that can be made without a mortgage. It will certainly be interesting to keep a close eye on what is a rapidly changing situation and track whether any further support is offered.

Although there are headwinds, property continues to offer an attractive investment proposition, especially when looking outside traditional buy-to-let models. Despite the doom and gloom, there are plenty of opportunities out there for savvy investors.

Wish to speak to one of our property portfolio managers about your current position? Please give us a call or reach out using our contact form and a member of our team will call you back.

Important note: The information provided in this article is general in nature and does not constitute personal financial advice. If you are unsure whether an investment is right for you, please seek professional advice. If you choose to invest, the value of your investment can both rise and fall so you may get back less than you put in.