Kwasi Kwarteng, our new chancellor of the Exchequer, announced fiscal changes in our economy. He outlined plans for April 2023 and others which take effect as soon as Friday 23rd of September. The planned changes, or cancellation of previous changes, are all part of the government's “Growth Plan” for the UK to expand the economy at 2.5% each year.
Freezing Corporation Tax
The government is planning to cancel the corporate tax increase to 25%, which was promised to happen in April 2023. Instead, it will leave corporation tax at 19%, one of the lowest in Europe. This ensures that the UK economy is competitive compared to our European neighbours, incentivising individuals to open businesses and grow the economy.
Should you incorporate your buy-to-let business?
If you are a landlord, especially in the higher bracket tax rate, you may wonder whether you should set up a limited company. This can be advantageous if you are in the higher tax rate bracket paying 40% tax on your income. However, with a limited company, there comes its own set of fees.
Although corporation tax is considerably lower, taking money from your company will incur other fees and taxes. Dividends tax on anything over £2,000 is at 7.5% for basic rate taxpayers and 32.5% for higher and additional rate taxpayers on top of the corporation tax. Or, if done with PAYE you will be subject to Income tax and National Insurance.
Furthermore, individuals that sell a property that is not their primary residence and realise a taxable gain are subject to capital gains tax of 18% for basic rate taxpayers and 28% for higher and additional rate taxpayers. You are entitled to an Annual Exempt Allowance of £12,300 to offset this, which isn’t available for limited companies.
Many variables will determine which option is better for you. Therefore it's advisable to speak to a financial advisor or an accountant who will talk you through your options.
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Increasing stamp duty threshold
The government aim to stimulate the UK housing market by cutting Stamp Duty Land Tax (SDLT). When purchasing property, the threshold before paying SDLT has been doubled to £250,000. For first-time buyers, the threshold amount has increased by £125,000, bringing the total to £425,000. The government estimates that 200,000 individuals won't need to pay SDLT.
Increasing the stamp duty threshold will reduce barriers for property buyers. As SDLT falls and the demand for property increases, the government hopes that more properties will be available, increasing choice and competitiveness in the UK housing market.
Those planning to purchase a property now or in the short term will reap the benefits from this change. However, some professionals are in consensus that with the supply of properties still very much constrained, there is the risk that it will push prices even higher in an already heated property market as it did during the pandemic when the stamp duty holiday was announced.
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