Tax & VAT watchpoints for landlords in 2022

When Benjamin Franklin said there were only two things certain in life – death and taxes – it probably didn’t occur to him that we’d still be feeling the same way more than 230 years later, especially in the case of landlords.

Paying tax on income is part and parcel of operating in the private rental sector and 2022 is a good year to revisit the tax and VAT watchpoints that landlords – especially those interested in developing property to rent out – need to be mindful of. 

Recent but established changes

The tapering of mortgage interest tax relief is now in full effect and landlords can only offset 20% of their mortgage interest payments against their tax bill. While this has been a detrimental shift, there is good news when it comes to CGT (Capital Gains Tax). The deadline for reporting and paying CGT on the profits of additional properties changed in 2022. Landlords now have 60 days, rather than the previous 30, to report and pay a CGT bill when selling a buy-to-let asset. 

Ones to watch: in consultation

The Government is formally consulting on plans to reform Income Tax Self-Assessment for individuals with income from property or self-employment. It wants to reduce the time that individuals (including landlords) have to notify HMRC of a tax liability, from six months to something much lower – possibly just one month. The Government’s idea has been widely panned in the accountancy sector, so we expect a revision of thinking or clarification later in 2022.

Property investors hoping to capitalise on vacant units on High Streets should bear in mind another Government consultation that has just closed, this time on the matter of SDLT (Stamp Duty Land Tax). Currently, landlords who buy a ground floor shop with a residential flat above pay lower commercial rates of SDLT on the entire purchase. The Government wants the residential portion of such a transaction to be billed at the higher residential rate in the future. The consultation will also rule on how the Government can reduce an increasing number of incorrect MDR (Multiple Dwelling Relief) claims.  

VAT for developer landlords

Property investors looking to pay as little VAT as possible can explore a number of reduced rate options. Although a cautionary approach and professional tax planning advice is recommended, those looking to convert a former commercial building into a residential buy-to-let may be eligible to pay 5% VAT on works to the building, rather than the full 20%. When it comes to developing student rentals, VAT relief can be as low as zero rate if the development meets the right criteria.

A note on holiday lets

Short holidays lets are a simple premise to grasp and with the ‘staycation’ trend set to stick around, it’s no surprise more people than ever are tempted to rent out their home to holiday makers. Any earnings gained from holiday let platforms such as Airbnb are taxable, and the rental income should be declared to HMRC by the landlord via a self-assessment tax return. 

When it comes to VAT, the temporary reduced rate for suppliers of holiday accommodation – including short Airbnb lets – ends on 31st March 2022. The rate will rise from 12.5% to the pre-Covid standard rate of 20% from 1st April 2022.

Want to know more?

If you find the tax or VAT elements of property development and buy-to-let confusing, please get in touch with our team for advice and specialist recommendations.

When Benjamin Franklin said there were only two things certain in life – death and taxes – it probably didn’t occur to him that we’d still be feeling the same way more than 230 years later, especially in the case of landlords.

Paying tax on income is part and parcel of operating in the private rental sector and 2022 is a good year to revisit the tax and VAT watchpoints that landlords – especially those interested in developing property to rent out – need to be mindful of. 

Recent but established changes

The tapering of mortgage interest tax relief is now in full effect and landlords can only offset 20% of their mortgage interest payments against their tax bill. While this has been a detrimental shift, there is good news when it comes to CGT (Capital Gains Tax). The deadline for reporting and paying CGT on the profits of additional properties changed in 2022. Landlords now have 60 days, rather than the previous 30, to report and pay a CGT bill when selling a buy-to-let asset. 

Ones to watch: in consultation

The Government is formally consulting on plans to reform Income Tax Self-Assessment for individuals with income from property or self-employment. It wants to reduce the time that individuals (including landlords) have to notify HMRC of a tax liability, from six months to something much lower – possibly just one month. The Government’s idea has been widely panned in the accountancy sector, so we expect a revision of thinking or clarification later in 2022.

Property investors hoping to capitalise on vacant units on High Streets should bear in mind another Government consultation that has just closed, this time on the matter of SDLT (Stamp Duty Land Tax). Currently, landlords who buy a ground floor shop with a residential flat above pay lower commercial rates of SDLT on the entire purchase. The Government wants the residential portion of such a transaction to be billed at the higher residential rate in the future. The consultation will also rule on how the Government can reduce an increasing number of incorrect MDR (Multiple Dwelling Relief) claims.  

VAT for developer landlords

Property investors looking to pay as little VAT as possible can explore a number of reduced rate options. Although a cautionary approach and professional tax planning advice is recommended, those looking to convert a former commercial building into a residential buy-to-let may be eligible to pay 5% VAT on works to the building, rather than the full 20%. When it comes to developing student rentals, VAT relief can be as low as zero rate if the development meets the right criteria.

A note on holiday lets

Short holidays lets are a simple premise to grasp and with the ‘staycation’ trend set to stick around, it’s no surprise more people than ever are tempted to rent out their home to holiday makers. Any earnings gained from holiday let platforms such as Airbnb are taxable, and the rental income should be declared to HMRC by the landlord via a self-assessment tax return. 

When it comes to VAT, the temporary reduced rate for suppliers of holiday accommodation – including short Airbnb lets – ends on 31st March 2022. The rate will rise from 12.5% to the pre-Covid standard rate of 20% from 1st April 2022.

Want to know more?

If you find the tax or VAT elements of property development and buy-to-let confusing, please get in touch with our team for advice and specialist recommendations.