Buy-to-let tax changes landlords need to know about in 2024

Every year, tax and legislation changes happen. However, in the past few years, landlords and the buy to let market have continually targeted by the government with additional legislation and tax changes.

Landlords with investment properties will be taxed both for their business or personally, whether it’s income tax, corporation tax, capital gains tax or stamp duty land tax. So, it is important for landlords to keep ahead of tax changes every year.

In this blog, we will provide the essential guide to Buy to Let tax changes landlords need to know about in 2024.

What taxes do landlords pay?

Taxes that landlords need to be aware of are as follows:

• Stamp Duty Land Tax (SDLT)
• Income Tax
• Capital Gains Tax (CGT)
• Corporation Tax
• Inheritance Tax (IHT)

Stamp Duty Land Tax (SDLT)

When you buy a property, you’ll need to pay a purchase tax, this is a portion of the price paid to HMRC as stamp duty. The amount you have to pay depends on the purchase price of the property. The higher the property price, the more you’ll need to pay in stamp duty.

Stamp duty applies in England and Northern Ireland. Similar taxes are in place in Scotland ( Land and Buildings Transaction Tax ) and Wales ( Land Transaction Tax ).

For the 2024/25 tax year, the following stamp duty rates are applicable:

Additional properties and overseas buyers

Buyers of second homes or additional properties face an additional 3% surcharge on top of the standard SDLT rates. This surcharge applies when you purchase additional property whether it is in the UK or abroad.

Non-UK residents buying residential property in England and Northern Ireland pay an extra 2% SDLT surcharge on top of the standard and additional property rates.

2024 SDLT changes

Multiple dwellings relief for SDLT was abolished on dwellings in England and Northern Ireland on all transactions from June 1, 2024. MDR was a bulk purchase relief from SDLT which applies to the purchase of 2 or more dwellings.

The cost of stamp duty can be high, you will need to budget for this when you buy a property. Generally, your estate agent or solicitor will manage the SDLT process for you and submit your stamp duty return to HMRC.

Use the governments stamp duty land tax calculator to work out how much you need to pay before buying a rental property.

Buy-to-Let income tax rates 2024/25 tax year

As a landlord, you can buy your properties as an individual and pay income tax, or you can buy them through a limited company and pay corporation tax.

How much Income Tax you pay in each tax year depends on:

• how much of your income is above your Personal Allowance
• how much of your income falls within each tax band

Some income is tax-free. This is called your personal allowance. The personal allowance is £12,570 for 2024/25.

The current tax year is from 6 April 2024 to 5 April 2025.

Basic rate taxpayers will pay 20% income tax on any income they earn between £12,571 to £50,270 (this is income from all sources, not just rental income).

Higher rate taxpayers will pay 40% income tax on any taxable income they earn between £50,271 and £125,140.

Additional rate taxpayers will pay 45% income tax on taxable income they earn over and above £125,140.

Whether or not you need to pay UK tax on income from an overseas rental property depends on your circumstances. Generally, if you are UK resident, you will need to inform HMRC about your income from overseas property.

Landlords should complete their annual self assessment tax return to declare rental income and any income from other sources.

2024/25 income tax changes

There are currently no changes to the headline rates and thresholds of income tax in 2024. However, personal tax rates thresholds remain frozen until 2028, effectively meaning you’ll pay more tax each year due to ’fiscal drag’.

National insurance changes 2024

In the 2023 Autumn Statement, the Chancellor announced a reduction in the Class 1 NI for employees & directors. From 6 January 2024, employee Class 1 National Insurance contributions (NICs) on earnings between £12,570 and £50,270 were reduced by 2% to 10%. The 2% rate on earnings above £50,270 remained unchanged.

From 6 April 2024, Class 2 self-employed NICs were abolished altogether and Class 4 NICs cut from 9% to 8%.

Capital Gains Tax (CGT)

With the property market still buoyant and house prices continuing to rise, it is likely that the property you own will gain in value. Landlords have to pay capital gains tax on the profit they make when they sell a buy-to-let property.

Landlords of buy to let property have seen the tax-free allowance for selling property reduced significantly over the last two years. This means many landlords could be hit with a higher capital gains tax (CGT) bill.

For residential property sales, higher rate taxpayers (those who earn between £37,701 and £125,140) will pay 24% in CGT). There is a lower rate of 18% for gains that fall within the basic rate band (those who earn up to £37,700).

2024/25 CGT changes

The CGT allowance is £3,000 for individuals in the 2024/2025 tax year, and £1,500 for trustees.

Ways to reduce your Capital Gains Tax bill on buy-to-let property

1. Use your tax-free CGT allowance

Like your personal tax allowance, you have an annual CGT personal allowance. This CGT allowance is called the annual exempt amount and is currently £6,000 (2023/24). Landlords should ensure they utilise this allowance when selling a property and have no other capital gains in the year.

2. Using deductions available on buy-to-let

There are certain costs that buy to let landlords can be deducted from any capital gain when you sell a property. These include things like:

• Costs for capital improvements such as extensions etc.
• Solicitor’s fees
• Estate agent’s fees
• SDLT (or similar) paid when you purchased the property
• Surveyor’s costs
• Cost of advertising to find a buyer
• costs incurred in making any valuation or apportionment required for the purposes of the Capital Gains Tax computation (accountants cost for capital gains tax return filing or computation of tax liability is not allowed)

3. Live in your own buy to let

When selling a property that was once your main residence that you have let out at some stage, you may qualify for tax relief to reduce your CGT bill. Doing this is known as flipping and whilst there is no limit to the number of times you can change your main residence, you must have genuinely been living in the property, as a main home, to qualify. However, strict rules apply. Read more here.

CGT Relief for Partial Letting refers to the tax relief available when you let out only a portion of your home to tenants. In this case, you need to determine the proportion of your home that you lived in, as you’ll only receive Private Residence Relief on that specific proportion of the property income.

4. Make use of a spouse’s tax band

Capital Gains Tax is generally not paid when assets are transferred between spouses, so you could effectively make use of their lower tax bands.

4. Use a limited company structure to minimise tax

Holding buy to let properties in a limited company, rather than personally has many tax advantages, such as being able to offset costs such as mortgage interest payments against tax bills.

Find out if you can reduce your CGT bill here and seek professional advice from accountants such as dns.

Corporation tax

As a landlord, you can buy your properties as an individual and pay income tax on self employed profits, or you can buy them through a limited company and be taxed at corporation tax rates instead. Most landlords and property investors with multiple properties, will opt to run their property portfolios via a limited company.

Over the years, the government has hit landlords with many changes and legislation, meaning it has become harder to make good profits on buy to let properties. However, holding your properties in a limited company may still be beneficial. Whether it is beneficial to you, may depend on things like other income, your future plans and your family circumstances and how many properties you own. For example, if you only hold one or two properties, then owning them as personal assets may be better.

As a landlord, you can claim property expenses and allowable deductions including administrative costs and maintenance and this will reduce your corporate tax bill.

With private landlords not being able to deduct mortgage expenses from their rental income to reduce their tax bill, many smaller landlords have changed the way they hold property and from paying tax as an individual to setting up a company and paying corporate tax instead to benefit from cheaper tax rates.

The corporation tax rate currently ranges from 19% - 25% (dependent on profits). Rates for personal tax are dependent on your personal tax band. Personal tax rates are: 20% for a basic rate taxpayer, 40% for a higher rate taxpayer and 45% for an additional rate taxpayer, so there may be significant savings in paying corporate tax, rather than personal income tax on rental profits.

There have been no significant changes to Corporation Tax currently announced for 2024/25.

Inheritance tax (IHT)

IHT is a tax placed on the value of an estate that is passed on after the death of an individual.

Buy-to-let properties, or the shares of a company that holds them, will form part of your estate when you die, and you’ll be liable for IHT at 40% on any value above the IHT ‘nil rate band’ of £325,000. This means that many landlords may well be exposed to a significant and often unexpected IHT bill.

Property held within a company gives more options when it comes to planning for IHT.

If you plan to pass your business on to your family in the future, it can be simpler to transfer a limited company than a privately held property. In this circumstance, as the property remains owned by the company, it could also be protected from stamp duty, IHT and capital gains tax liabilities.

To get help on how landlords can reduce their IHT bill, take professional advice from accountants such as dns accountants.

IHT 2024/25 changes

There were no changes to IHT made in the Budget released by Chancellor of the Exchequer, Jeremy Hunt, in the Spring Budget 2024, meaning the ’nil rate band’ remained at £325,000 and will be frozen until 2027/28. Effectively, meaning a tax increase for many landlords.

Making Tax Digital for Landlords (MTD)

The UK government is gradually moving individuals and businesses to a more effective online only tax filing system. However, it has faced a number of delays in recent years.

MTD requires individuals and businesses to submit quarterly returns to HMRC via MTD compatible software and it will apply to self-employed individuals and landlords with annual business or property income of:

• more than £50,000 from 6 April 2026
• between £30,000 and £50,000 from April 2027

The UK government plans to move to an online-only tax filing system, with quarterly returns for self-employed individuals and landlords.

Making tax digital has been in place for landlords who run VAT registered businesses since 2022.

Furnished Holiday Lets tax benefits to be scrapped 2025/26

The Chancellor announced in the Spring Budget 2024 that the favourable tax treatment furnished holiday lettings (FHLs) currently benefit from will be abolished with effect from 6 April 2025.

Furnished holiday lets currently benefit from a range of beneficial tax rules including:

• The full amount of finance costs (i.e. mortgage interest payments) can be deducted from FHL income.
• On disposal of Furnished holiday lets, business asset disposal relief may be available resulting in a 10% capital gains tax rate applying.
• Profits from FHLs count as relevant earnings for pension purposes meaning tax-advantaged pension contributions can be made.
• Capital allowances on items such as furniture and fixtures and fittings can be claimed against the rental income where the accruals basis applies.
• Expenditure on furniture etc. is generally deductible as an expense of the property business where the cash basis applies.

What other changes may happen in 2024 that affects landlords?

Following the general election and the new labour government coming into power, there is some uncertainty about what other changes will happen that will affect landlords. It is likely that there will be a ’fiscal event’ in the Autumn but whether this is a full Budget or Autumn Statement is yet unclear.

Labour promised no increases to income tax rates, but they also made no proposals to increase tax bands either, meaning individuals will continue to pay more tax year on year due to ’fiscal drag’.

Labour made no manifesto promises or statements about CGT or inheritance tax, but if they are looking at raising tax revenues, then CGT and IHT may areas they look to use to help to raise future tax revenues.

In the Labour manifesto there is mention of a plan to increase the SDLT surcharge applied to overseas buyers purchasing UK residential property by 1% (taking the surcharge to 3%).

Landlords should also keep a close eye on other areas where the new government may look to change things in the buy to let market. The new Renters Rights Bill is Labours version of the Conversative Renters Reform Bill. Changes proposed by Labour include:

• abolishing Section 21 ‘no fault evictions’
• strengthening tenants’ rights and protections
• supporting quicker, cheaper resolution when there are disputes to avoid legal disputes
• protection for people with children on benefits by making it illegal for landlords to discriminate against these tenants
• applying a Decent Homes Standard to the private rented sector
• strengthening local councils’ enforcement powers against unscrupulous landlords
• creating a digital private rented sector database
• allowing tenants the right to request a pet
• applying ‘Awaab’s Law’ to the sector (This legislation effectively inserts into social housing tenancy agreements a term that will require landlords to comply with new requirements, to be set out in detail through secondary legislation. It is designed to tackle the problems of damp and mould in social housing)

Summary

The rental property market has been badly hit in recent years by successive governments.

Tax rules and rates change regularly and with the new Labour government now in power, now more than ever landlords need to keep abreast of changes happening. There could still be more tax changes to come in 2024/25. Tax rules and rates change regularly and with the new Labour government now in power, now more than ever landlords need to keep abreast of changes happening. There could still be more tax changes to come in 2024/25.

It’s also important to also remain compliant with HMRC and complete your tax returns accurately and on time and to keep accurate records of all your expenses when running a buy to let portfolio.

Tax planning and seeking professional tax advice could save buy to let landlords thousands of pounds. Whether you’re a buy-to-let landlord, individual landlord, corporate landlord, property dealer, estate management, non-resident investor, or a second property owner looking for a landlord property accountant, dns property accountants have packages and accounting services to suit your every landlord and property need.

With changes happening for UK landlords and the buy-to-let market regularly, having property tax specialists that truly understand the property sector is crucial. There are many ways to minimise your tax bill and maximise the return on your property investment. This is where specialist property accountants such as dns can assist you.

Call us today on 03300 886 686, or you can also e-mail us at enquiry@dnsaccountants.co.uk. for help with all your tax and buy to let property financial needs.

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