Working out tax with calculator and tax documents - tax implications for landlords in 2019 election

The debate during this election campaign has been around the size of the state, and the funding to support it. True to their stereotypes, the Conservatives have pledged to freeze most taxes, and while increasing public spending from current levels, have been much more cautious about budgetary promises. Conversely, Labour and the Liberal Democrats have both promised tax increases and greater spending – albeit to different extents.

What tax changes are each political party proposing?

Conservatives

  • No increase in rates of income tax, National Insurance contributions or VAT
  • Cancel reduction in corporation tax – remains at 19 percent
  • Increase National Insurance threshold to £9,500
  • 3 percent stamp duty surcharge for non-UK resident buyers

Labour

  • Change income tax bands, so earnings over £80,000 are taxed at 45 percent, and earnings over £125,000 are taxed at 50 percent
  • Equalise rates of income tax and capital gains tax
  • Reduce capital gains tax-free allowance to £1000
  • Increase corporation tax to 26 percent by 2022
  • 20 percent levy on overseas companies buying housing

Lib Dems

  • Increase income tax 1p in the £
  • Capital gains tax allowance to be merged with income tax allowance
  • Increase corporation tax to 20 percent
  • Stamp duty land tax to depend on energy rating
  • Home insulation VAT reduction
  • Stamp duty surcharge on overseas residents buying second homes

What are the implications for landlords?

So what do these proposals mean for different landlords? Below we explore the tax implications of the manifestos for landlords with three different types of portfolio and future intentions.

Typical landlord A

  • One property, outside London, total value: £160,000
  • Does not intend to buy or sell in the next 12 months – accidental landlord using as pension investment
  • Rental income: £12,000 / year
  • Also has employment income: £32,000 / year
  • Total assets: £160,000
  • Total income: £32,000 / year

Conservatives

Slight reduction in tax on income due to increase in National Insurance threshold (approx. £105 more in hand).

Labour

No change.

Lib Dems

Impact of income tax rise – approx. £300 [GM1] [GM2] more tax paid per year.

Typical landlord B

  • 8 properties, aimed at student market, total value: £1.5 million
  • Intends to sell one or two properties in the next 12 months – owned as an individual
  • Rental income: £60,000 / year
  • Retired – pension income: £15,000 / year
  • Total assets: £1.5 million held individually
  • Total income: £75,000

Conservatives

Increase in National Insurance threshold means approx. £105 more in hand.

No change otherwise.

Labour

No change in tax on income tax.

Capital gains – will bump landlord into the 45 percent tax bracket if more than £6000 profit made on sale of property (or potentially higher, if large profit made). Significantly more tax paid than current status quo (capital gains at 28 percent with a £12,000 tax-free allowance).

Lib Dems

Increase in tax on income - £625 more tax paid.

Capital gains – capital gains tax-free allowance will be subsumed into the income tax allowance, meaning a greater proportion of the profit from the sale of property will be taxed. Capital gains would also be taxed at the marginal rate – as with Labour.

Typical landlord C

  • 28 properties, mix of single-household and HMOs, total value: £3.5 million
  • Intends to buy one or two properties in the next 12 months in a limited company
  • Rental income: £250,000 / year (paid into limited company)
  • No other income, manages landlord business as primary employment
  • Total assets: £3.5 million held in limited company
  • Paid salary from limited company: £130,000

Conservatives

Increase in National Insurance threshold means approx. £105 more in hand.

Planned cut in corporation tax axed – therefore remains at 19% - no change.

Labour

Increase in income tax to 45% on income above £80,000 and 50% for income above £125,000 means a greater tax burden - £3750 more tax paid as an individual.

Corporation tax – planned increase to 26 percent would mean an extra £17,500 paid in tax on current income – which would rise as rental income increases with further investment.

Lib Dems

Increase in income tax of a penny in the pound across bands - £1300 more tax paid.

Corporation tax – increase to 20% - increase tax payment of £2500 – which would rise as rental income increases with further investment.

10 December 2019 - 4:31pm
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