Landlords Warned Tax Change Could Have Shocking Impact

After the Government’s ‘Tax Day’ on Tuesday 23rd March, Landlords have been warned that there may be a surprising change buried in the announcements relating to the Making Tax Digital programme.

For the most part, the announcements made on ‘Tax Day’ had little impact on the property sector. Property developers and investors looking for some beneficial change were underwhelmed. However, Katharine Arthur, a tax expert at accountancy practice HaysMacIntyre, has suggested that there is a hidden surprise for landlords from the announcements.

She states: “of particular note is the confirmation that Making Tax Digital for income tax is set to go ahead in April 2023, as it will fundamentally change how those receiving rental or self-employed income, for example, file their tax returns. This, in turn, ties in with the proposed changes to timely payments, which could see those who pay through tax returns reporting quarterly or even monthly, as opposed to two instalments a year.”

Katharine Arthur continues: “these changes could result in a significant overhaul of the tax system as we know it, and although it could see both the self-employed and landlords facing a hefty administrative task as they get to grips with the new reporting methods, it will ultimately help to streamline and modernise the current system.”

This is surprising and interesting news for potential property investors and wannabe-landlords who may have been holding back due to the fear of tax returns. Having to always keep up with their tax to file two large payments per year can be a daunting task, as many fear a miscalculation could mean they spend money meant for their tax returns. By having the potential for more manageable digital tax payments and more payment opportunities quarterly or monthly, the risk of not calculating tax correctly is reduced.

However, the government also made another shocking announcement for property investors on ‘Tax Day’. They suggested tightening taxation around holiday lets. Taxes are more favourable to holiday lets than buy to let, and if your home meets the holiday let criteria, it can save you some real money as you become classed as a business. However, the government included the following statement in their announcements, suggesting a change in this area:

“The government will legislate to change the criteria determining whether a holiday let is valued for business rate to account for actual days the property was rented, following a previous consultation. This will ensure that property owners cannot reduce their tax liability by declaring that a property is available for let while making little or no actual effort to do so. Further details of the change and implementation will be included in the Ministry for Housing, Communities and Local Government’s response to the consultation on the business rates treatment of self-catering accommodation which will be published shortly.”

Property investors and landlords who have dealings with holiday homes – or were considering this route – need to seriously consider whether this is a profitable and viable option anymore with these proposed changes.

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