Former Chancellor of Exchequer Kwasi Kwarteng unveiled several tax changes in the Mini-Budget 2022 on 23 September 2022. Later some amendments were made to initial announcement due to the turmoil in the financial markets following the mini-budget 2022 announcement.
These changes will affect both individual and corporate bodies in the property business. The new tax rates and cut-offs strategised towards economic growth may turn out to be a boon for those looking to buy new properties.
Key Takeaway of the Mini-Budget 2022
- Stamp Duty and Land Tax initial threshold doubled to £250,000 with immediate effect
- Change in Stamp duty and Land Tax threshold for first-time buyers
- Corporation tax increases to 25%
- Annual Investment allowance intact with a limit of £1 million from 1 April 2023
- Basic rate of income tax at 20% remains
- Additional rate of income tax remains
- Increase in dividend tax rates by 1.25% in place
- National Insurance percentage rise reversed by 1.25%
- Plans of investment zones in the UK
Save on Stamp Duty and Land Taxes while Purchasing Properties Post-Mini-Budget 2022
Great news for those buying residential properties! You will now save straight £2,500 of Stamp Duty and Land Taxes on your purchase if you do not own any other residential property, and above £2,500 on additional properties purchased post 23 September 2022.
Increased Thresholds and Cut-off Rates for Stamp Duty & Land Taxes
Initially, on the purchase of property valued up to £125,000, Stamp Duty and Land tax was calculated at zero percent. From 23 September 2022 onward, the property value threshold is doubled to £250,000 for the purchase of residential property in England and Northern Ireland.
Below is the detail table showing recent SDLT rate.
|
Property or Lease Premium or Transfer Value |
SDLT Rates | |
|---|---|---|
|
Standard First Property |
Additional 13% surcharge | |
|
Up to £250,000 (previously up to £125,000) |
0% |
3% |
|
£250,001 to £925,000 |
5% |
8% |
|
£925,001 to £1.5 million |
10% |
13% |
|
Above £1.5 million |
12% |
15% |
Revised First-time Buyers’ Relief
Is this your first time ever buying a residential property?
The excitement of buying your first property has now been doubled as the mini-budget helps you save on tax bills. Previously, you would have qualified for a first-time buyer’s relief while purchasing UK property valued less than £500,000, which is basically no Stamp Duty and Land taxes in the initial £300,000.
However, the latest mini-budget has increased the purchase threshold to £625,000 and you will now pay no Stamp Duty and Land taxes for the purchase of property up to £425,000.
|
Pre-Mini-budget |
Post-Mini-budget |
|---|---|
|
No SDLT up to £300,000 |
No SDLT up to £425,000 |
|
5% SDLT on the portion from £300,001 to £500,000 |
5% SDLT on the portion from £425,001 to £625,000 |
|
Over £500,000 no relief rates |
Over £625,000 no relief rates |
Corporation Tax on Property SPVs Increases to 25%
The government had initially cancelled the plan of any increment of corporation tax from 19% to 25% in the mini-budget 2022. The corporation tax rate was to freeze at 19% for all companies, regardless of the amount of profit made.
However, this decision has been scrapped in the statement on 17 October 2022 made by the Chancellor Jeremy Hunt and UK corporation tax will go up from 19% to 25% in April 2023.
U-turn for Income Tax Rates
The anticipated cuts in income taxes came a year earlier than planned, to be applicable from tax year 2023-24 onwards.
However, the Chancellor Jeremy Hunt reversed all these income tax cuts in his statement on 17th October 2022.
Here is summarised table to provide some at-a-glance view of changes to income tax via mini-budget (23 September 2023) and reversed decisions after 17 October 2022.
Higher Tax Rate
01-Pre Mini-budget
45% tax year applicable for income above £150,000
02-Mini-budget
No 45% additional rate is applicable, a single higher rate Income Tax of 40% for income above £50,270.
03-Mini Budget repeal
45% tax year applicable for income above £150,000
Basic Tax Rate
01-Pre Mini-budget
20% for income up to £50,270
02-Mini-budget
19% for income up to £50,270
03-Mini Budget repeal
20% for income up to £50,270
Dividend Tax
01–Pre Mini-budget
7.5% up to an income of £50,270
32.5% from £50,270 to £150,000
38.1% above £150,000
02–Mini-budget
7.5% up to an income of £50,270
32.5% from £50,270 and above
03–Mini Budget repeal
8.75% up to an income of £50,270
33.75% from £50,270 and above
39.35% above £150,000
Saving Allowance
01–Pre Mini-budget
£1,000 for income up to £50,270
£500 for income from £50,270 to £150,000
No saving allowance for income above £150,000
02–Mini-budget
£1,000 for income up to £50,270
£500 for income from £50,270
03–Mini Budget repeal
£1,000 for income up to £50,270
£500 for income from £50,270
No saving allowance for income above £150,000
National Insurance Percentage Rise Revised
The rise of 1.25% of National Insurance Contribution (NICs), which was introduced in April 2022, will be reversed from 6 November 2022.
Here is surmised table to provide some at-a-glance view of changes to National Insurance Contribution (NICs) via mini-budget (23 September 2023)
|
|
Pre-mini budget (applicable from 6 April 2022 to 5 November 2022) |
Post- mini budget (applicable from 6 November 2022) | ||
|---|---|---|---|---|
|
|
Employee |
Employeer |
Employee |
Employeer |
|
Class 1 NIC |
Salary upto £50,270 at 13.25% Salary above £50,270 at 3.25% |
Salary above £9,100 at 15.05% |
Salary upto £50,270 at 12% Salary above £50,270 at 2% |
Salary above £9,100 at 13.8% |
|
Class 4 NIC |
N/A |
Profit up to £50,270 at 10.25% Profit above £50,270 at 3.25% |
N/A |
Profit up to £50,270 at 9% Profit above £50,270 at 2% |
Annual Investment Allowance for Companies remains intact
Previously, for a limited company, the limit for Annual allowance claim on investment in plants and machinery was decreased from £1,000,000 to £200,000 since 1 January 2022. Annual Investment Allowance limits will now be reinstated and remain at £1 million after 31 March 2023.
This is going to act as an encouragement for all businesses to increase their level of capital investments in plants and machinery.
|
Limit of Annual Investment allowance | ||
|---|---|---|
|
Up to 31 December 2021 |
1 January 2022 to 31 March 2023 |
After 1 April 2023 |
|
£1,000,000 per annum |
£200,000 per annum |
£1,000,000 per annum |
So, How Does This Impact Your Taxes?
For example, A ltd. draws accounts from 1 April to 31 March each year. Their profit for the year ended 31 March 2023 and 31 March 2024 is £800,000.
The company is looking to invest in plant and machinery worth £600,000. Let us see what will impact on tax if the company buys the asset on 25 March 2023 or if they delay the purchase by 10 days and buys the asset on 4 April 2023.
|
|
If the asset is bought on 25 March 2023 |
If the asset is bought on 4 April 2023 |
|---|---|---|
|
Profit |
800,000 |
800,000 |
|
Less: Annual Investment allowance |
(200,000) |
(600,000) |
|
Profit chargeable to corporation tax |
600,000 |
200,000 |
|
Tax at 19% |
114,000.00 |
38,000.00 |
|
Tax saving |
76,000.00 | Cell |
As you can see in the example, if A ltd. keeps in mind the impact of changes in the limit of Annual Investment Allowance and plan the purchases ahead, they can immediately save tax of £76,000. So can you!!
Expand Your Property Business in Investment Zones and Get Tax Reliefs
To further encourage rapid development and business investment, the government plans to set up new investment zones across the UK with low regulations and minimal tax implications.
These areas will receive tax incentives, planning liberalisation, and support from the government. Some intended tax incentives are as follows:
Stamp Duty and Land Tax
Investors purchasing land and buildings for new residential development in the designated investment Zones will pay no stamp duty
Business Rate Relief
100% business rate relief will also be available for investors purchasing land and buildings for new residential development.
First Year Capital Allowance
There will be a 100% first-year enhanced capital allowance relief for plant and machinery used within designated sites
Employer National Insurance
Businesses in these areas will pay zero rates for Employer National Insurance contributions on new employees working for at least 60% of their time in the tax site, earning up to £50,270 per year.
Enhanced Structures and Buildings Allowance relief
Enhanced Structures and Buildings Allowance relief of 20% per year will be available for the cost of qualifying non-residential investment.
Summary
Although inflation is on an increasing trend, the changes as per mini-budget 2022 and further amendments support and encourage property business growth, and expansions.
Our property accountants and tax advisors are well versed with the contemporary changes in property tax laws to help you make the right decisions.
