The Chancellor confirmed the anticipated change to the marginal rate corporation tax regime will continue on 1 April 2023 as planned, with a lower limit of £50k and an upper limit of £250k.
One of the main advantages of having properties held in a limited company is less taxation. For portfolio landlords who operate through a limited company, the difference in paying tax on profits rather than income tax can be quite substantial. However, this financial advantage has just been weakened with a subtle confirmation of April's planned rise in corporation tax from 19% to 25% during today's Spring Budget.
Prior to changes to income tax legislation in April 2020, landlords were able to deduct mortgage interest payments from rental income before declaring it for tax purposes - effectively lowering their tax bills. However, following the change in legislation, many landlords could no longer claim the same level of mortgage relief they could access before, prompting a surge in landlords setting up limited companies so that they avoid a hike in their income tax and pay corporation tax instead.
In fact, recent data from Companies House revealed that there were a record 47,400 new buy-to-let companies incorporated in 2021 across the UK - nearly twice the number that was set up in 2017 and further indication that the sector is shifting away from 'amateur' landlords and becoming more professional.
However, with rising mortgage rates, tightening regulations, and today's corporation tax announcement, it certainly seems as though even 'professional' landlords are in for a rough ride.
