Expanding your property portfolio can help increase your financial security — but is now a good time to buy to let?

As house prices start to fall and rents rise across the UK, 2023 may look like a good year to get your foot on the investment property ladder. However, making that decision is far from straightforward.

While a buy-to-let investment strategy can provide you with a regular rental income, it also comes with additional costs and responsibilities.

Recent economic factors such as soaring mortgage rates and reduced tax relief could also negatively impact your profits as a landlord, so it’s essential to weigh up your options carefully.

In this article, we’ll discuss the pros and cons of investing in buy to let in 2023.

What is buy-to-let?

A buy-to-let is a property bought for the purpose of renting it to tenants. You’ll usually need to get a buy-to-let mortgage if you intend to receive rental income from a residential property — unless you purchase it outright.

While these mortgages usually come with higher upfront costs, they are often interest-only. This means your monthly instalments will only pay off the interest on the loan, so you won’t need to settle the full sum until the end of your mortgage period.

Is it a good time to buy to let?

The housing market

The UK housing market is slowing down. Property transactions dropped by 18% in the year to February 2023 and reports suggest that house prices are falling at the fastest annual rate since 2009.

This could have both positive and negative consequences for buy-to-let investors. On one hand, buying a property when prices are low may give you a better return on your investment — so long as you get your timings right.

A slower market could also give you some bargaining power if you can offer homeowners a quick sale. Some sellers may be willing to reduce their asking price rather than keep their property on the market for an extended period of time.

Conversely, if your property continues to decrease in value well into the near future, you may end up selling it for less than you paid for. Even if you do get a good deal, you’ll also need to factor in additional costs such as taxes and mortgage rates.

The lettings market

You may experience less competition from other landlords in 2023. According to the Royal Institution of Chartered Surveyors, tenant demand hit a five-month high in March 2023 as many UK homeowners decided to sell their properties rather than rent them out.

As a result, the disparity between the number of rental properties and prospective tenants are causing rents to rise across the country, which could be good news for your bottom line.

It may also be easier to find good tenants quickly. The smaller the gap between tenancies, the less time you’ll need to spend without a regular rental income.

Mortgages

The Bank of England has increased the base rate 11 times between December 2021 and March 2023 in an effort to curb soaring inflation. As a result, landlords looking to invest face steeper borrowing costs compared to a year ago.

While mortgage rates have fallen from their peak at the end of last year, the average buy to let five-year fixed deal sat at 5.72% in March 2023 — significantly higher than the 3% rates seen in March 2022.

Waiting for rates to fall further before taking out a mortgage may therefore help you avoid higher monthly payments. Alternatively, a tracker mortgage based on the BoE’s base rate may make it easier for you to switch to a better deal in the future.

Taxes

The tax landscape has changed significantly in recent years, leaving many landlords with a greater tax burden and fewer opportunities to save costs in 2023.

Mortgage interest relief

Prior to April 2017, you could deduct the entirety of your mortgage interest payments from your rental income as an allowable business expense.

A less generous basic rate tax deduction limited to 20% of your finance costs, profits of the property business or total income — whichever is lowest — has since replaced this relief.

As a result, no longer being able to deduct the full mortgage interest from your rental profits could push you into a higher tax bracket, depending on your earnings.

However, the original tax relief system still applies to limited companies — but before you incorporate, make sure you understand the additional costs and responsibilities of being a director.

Stamp duty land tax

Unless you’re eligible for a relief or exemption, stamp duty land tax (SDLT) is payable on a portion of the value of most properties over £250,000.

If you own more than one residential property, you’ll usually need to pay an additional 3% surcharge on top of the standard SDLT rates, increasing your upfront costs.

Corporation tax rise

Letting properties via a limited company may also be more expensive this year. As of April 2023, companies with annual profits over £50,000 will need to pay a higher rate of corporation tax.

Are you ready to expand your property portfolio?

If you’re thinking about expanding your property portfolio, outside factors are only half the story. Your own finances and personal circumstances need to be stable before you make any significant investments.

The minimum deposit for a buy to let mortgage is usually 25% of the sale price, and you’re likely incur other expenses, such as landlord insurance and maintenance costs, on top of that.

A long-term investment like buy to let also means long-term responsibilities. Landlords have a wide range of legal obligations, including ensuring the residential property is safe and checking that all gas and electrical equipment is installed correctly. You’ll also need to stay up to date with any changes to lettings legislation.

Seeking professional advice can help you determine whether it’s a good time for you to invest in buy to let.

As your accountant, we can guide you through the process. We’ll work closely with you to ensure you get the best return on your investment. We can also use our tax expertise to minimise your liabilities so you can retain more of your rental income when you start letting out your property.

Just weeks after announcing downloadable self-assessment returns would no longer be available online, HMRC has backtracked its decision.

Originally, the Government planned to take the option of physical self-assessment forms off the online portal, meaning taxpayers would have to call a dedicated line to request one.

At the end of March 2023, HMRC contacted almost 135,000 people who file paper tax returns to tell them downloadable self-assessments would no longer be available. The move was an attempt to push more people to file their returns digitally.

In reaction to the announcement, professional bodies such as the Institute of Chartered Accountants for England and Wales argued against the change in a bid to reverse HMRC’s decision.

Following this feedback, the forms will remain available for download from the Government website.

As well as self-assessment tax returns, HMRC will be moving the following forms to digital by default:

• SA316 Notice to file
• SA300 Statement of account
• SA250 Welcome letter
• SA251 Exit letter
• R002 Repayment notification
• CT603 Postal notice to deliver a company tax return
• P2 Employee coding notice
• P800 Tax calculation.

Recent reports from HMRC show that even though it had planned to require taxpayers to call for a paper return, its average phone waiting times increased to 10 minutes in February 2023, while over a third of calls were unanswered.

In the same month, HMRC received 3,229,945 calls, up 20% compared with 2.68m calls in February 2022, despite the tax authority’s attempts to encourage people to use online services and webchat to resolve queries.

Glenn Collins, head of technical and strategic engagement at the Association of Chartered Certified Accountants (ACCA), said:

“It would be good to see a long-term action plan, but in the short term, the Government does have an urgent duty not to make a bad situation even worse.”

Talk to us about your self-assessment tax return.

The Government has introduced a new bill to modernise business rates across the country.

Following feedback from businesses calling for a fairer system, the new Non-Domestic Rating Bill, announced on 29 March, will support businesses by incentivising property investment and introducing more frequent valuations.

A new business rates improvement relief will remove barriers for businesses to extend or upgrade their property. Businesses undertaking qualifying building improvements will not face higher rates for a year.

According to Melanie Leech of the British Property Federation, this relief could also support the UK’s journey to net zero as businesses work to future-proof older buildings.

Furthermore, valuations will now take place every three years instead of every five years, meaning businesses with falling values could see their bills drop earlier than expected.

The Government says these new measures will make business rates in England fairer and more responsive to changes in the market. The bill will build on recent measures from the 2022 Autumn Statement, which saw £13.6 billion announced in business rates support.

Victoria Atkins, Financial Secretary to the Treasury, said:

“I want businesses to know that the Government is on their side. Businesses have asked for changes to the business rates system, and we are acting, including more frequent revaluations to make the system fairer and more responsive.

“And they come on top of £13.6bn of business rates support which resets the balance between bricks and clicks businesses, helping our much-loved high streets and communities.”

However, Helen Dickinson, chief executive of the British Retail Consortium, urged the Government to take further action to support businesses:

“These are all positive changes, but the job is not done. Government’s focus must remain on reducing the rates burden, enabling more local communities across the country to thrive.”

A new report from the Public Accounts Committee (PAC) warns that the “temporary” digital services tax (DST) could stay in place longer than planned.

The DST raised £358 million in its first year – 30% more than expected. However, the Treasury acknowledges that it is a “second best” solution until the international community introduces a permanent international tax deal, according to the PAC.

“However, we saw little evidence to support the confidence expressed by the departments in evidence to us that the OECD reforms will be implemented to the current timetable,” the PAC wrote.

MPs on the committee warned that delays to this deal could prompt larger tech companies to circumvent the DST with the “huge resources and expertise at their disposal”.

The tax charges a 2% levy on the revenues of search engines, social media services and online marketplaces that profit from UK users.

The Chartered Institute of Taxation (CIOT) agreed that the DST risks becoming a permanent part of the UK tax system.

John Cullinane, director of public policy at CIOT, said the fact that the tax still exists represents a “failure”. He continued:

“A revenue tax such as this is a blunt instrument that cannot accurately represent the tax on the profits generated in the UK. It will inevitably over-tax some companies and under-tax others.”

Talk to us about your corporation tax liabilities.

HMRC has released guidance clarifying how it will phase in the abolition of the lifetime allowance (LTA) for pensions.

As announced by Chancellor Jeremy Hunt in his Spring Budget 2023, the current £1,073,100 threshold on the LTA ended on 5 April.

However, because the legislation is not included in the Spring Finance Bill 2023, the current LTA framework will remain in place until the Government fully removes it in 2024/25. This means that pension scheme providers must wait another year for their LTA-related duties to end.

The guidance states that pension scheme administrators should continue to operate standard LTA checks when paying benefits in 2023/24.

The current rules and charges will apply for any benefit crystallisation events (BCEs) occurring before 6 April 2023, but no LTA charge will arise for BCEs that take place from 6 April onwards.

Furthermore, while payments such as defined benefits and lump sum death benefits would usually be subject to a 55% LTA charge, this will be replaced with income tax at the recipient’s marginal rate.

As a result, HMRC says that employers will need to update their payroll systems “as soon as possible” and no later than 30 September 2023.

The pension lifetime allowance (LTA), which limits the amount savers can contribute to their pensions without a tax charge, will be abolished, Chancellor Jeremy Hunt announced in his Spring Budget.

Currently, people who save more than the current allowance level of £1,073,100 in their workplace pension scheme face a tax charge of either 25% or 55% on the excess (depending on how they receive it).

The Chancellor was expected to raise this limit to encourage pension savers to stay in work longer. Instead, he revealed he would “go further” and remove the tax charge from April 2023, before abolishing the allowance altogether from April 2024.

“I do not want any doctor to retire early because of the way pension taxes work,” he said. “As Chancellor, I have realised the issue goes wider than doctors. No one should be pushed out of the workforce for tax reasons.”

Hunt also announced an increase to the annual tax-free allowance for pension contributions from £40,000 to £60,000.

Legislation will be introduced in Spring Finance Bill 2023 to:

• increase the annual allowance (AA)
• increase the money purchase AA from £4,000 to £10,000
• increase the income level for the tapered AA to apply from £240,000 to £260,000
• ensure that nobody will face an LTA charge from 1 April 2023.

Other measures affecting individuals confirmed in the Spring Budget include a three-month extension of the energy price guarantee, an expansion of free childcare and the introduction of ‘returnerships’ to incentivise over-50s to return to work.

In his speech, Hunt said:

“It is a pension tax reform that will stop NHS doctors from receiving a tax charge, incentivise our most experienced and productive workers to stay in work for longer and simplify our tax system, taking thousands of people outside of the complexity.”

“This is a comprehensive plan to remove barriers to work.”

Talk to us about your pension contributions.

The Government has extended the voluntary National Insurance deadline by an extra four months, meaning taxpayers now have until 31 July 2023 to make additional payments and help increase their state pension entitlement.

The deadline for making additional National Insurance contribution (NIC) payments is usually six years. However, this extension allows taxpayers more time to fill gaps in their NI record between April 2006 and April 2016.

This decision came after public concern over the original deadline in April.

HMRC will also accept all voluntary NIC payments made at the current 2022/23 rates until the end of July 2023. This means taxpayers will need to pay the higher 2023/24 rates from August onwards.

Taxpayers need at least ten years of NICs to qualify for the state pension. As such, HMRC is urging those eligible not to miss out on the opportunity to boost how much they receive when they retire.

Victoria Atkins, financial secretary to the Treasury, said:

“We recognise how important state pensions are for retired individuals, which is why we are giving people more time to fill any gaps in their National Insurance record to help bolster their entitlement.”

Talk to us about your National Insurance contributions.

What are the Government’s new plans?

In his first Spring Budget as Chancellor, Jeremy Hunt announced a number of ‘investment zones’ across the country.

The programme will provide 12 areas, split across England, Wales, Scotland and Northern Ireland, with £80 million in support and “put powers and money in the hands of communities that need it most”.

As part of the Government’s levelling up plans, these zones will drive business investment through “generous tax incentives” and bolster the UK’s potential as a hub for innovation.

In his speech, Hunt set out the eligibility for zones that wish to be part of the scheme. He said:

“To be chosen, each area must identify a location where they can offer a bold and imaginative partnership between local government and a university or research institute in a way that catalyses new innovation clusters.

“If the application is successful, they will have access to £80 million of support for a range of interventions, including skills, infrastructure, tax reliefs and business rates retention.”

The Government is using these investment zones to help deliver its mission from the levelling up white paper, which is “taking a holistic approach to ensure the benefits of growth and investment are felt by local communities”.

The first goal (or mission one) is to ensure that pay, employment and productivity rises in every area of the UK by 2030, creating “globally competitive cities” and bridging the gap between top-performing and lesser-developed areas.

Mission two is to increase public investment in R&D outside the Greater South East by at least 40%, seeking to leverage at least twice as much private sector investment and drive productivity.

What areas will benefit?

The Chancellor has named the following eight potential areas for investment zones:

• West Midlands
• Greater Manchester
• the North-East
• South Yorkshire
• West Yorkshire
• East Midlands
• Teesside

Of the remaining four, at least one will be in Scotland, Northern Ireland and Wales.

The Government is now in conversation with 38 local authorities about the investment zone schemes, including the eight already identified.

Which sectors are being targeted?

Within these investment zones, the Government is targeting five priority sectors.

Digital and tech

With the UK having a world-leading technology sector (behind the US and China), the Government hopes to replicate the success of tech companies in London, Oxford and Cambridge. Focusing on tech-led innovation will help leverage “digital strengths and untapped potential” nationwide.

Green industries

By creating long-term certainty and demand, the Government is looking to bring more environmentally-conscious businesses and development to the UK.

Life sciences

Aiming to make the NHS the country’s most powerful driver of innovation, the Government looks to build on the UK’s science and research capabilities and create a robust environment for life sciences firms.

Advanced manufacturing

The investment zone prospectus states, “the UK has a proud history in manufacturing” and that the Government hopes to harness the synergy between manufacturing and innovation. The core objective is to support jobs, drive productivity and deliver the UK’s net zero commitments by investing in the manufacturing sector.

Creative industries

The Government wants to focus on creative businesses to “build on the sector strengths, support growth and ensure benefits of the creative industries are spread across the UK”.

How will they work?

In principle, the investment zone scheme will work flexibly for the areas that receive the money. Chosen partners will be able to use tax relief and funding to boost their economy however they see fit.

Local authorities can use the £80m funding for a number of fiscal incentives, such as:

• Stamp duty land tax: full relief for land and buildings bought for commercial use or development for commercial purposes.
• Business rates: 100% relief for newly-occupied business premises and certain businesses expanding in the investment zone tax sites.
• Enhanced capital allowances: 100% first-year allowances for companies investing in plant and machinery assets.
• Enhanced structures and buildings allowance: accelerated relief to allow businesses to reduce their taxable profits by 10% of qualifying costs for non-residential investments per year.
• Employer National Insurance contribution (NIC) relief: zero-rate employer NICs on salaries of any new employees for at least 60% of their time, on earnings up to £25,000 per year for a period of 36 months per employee.

This funding can also apply across a range of “potential interventions” to attract investment and push growth in promising sectors. These include:

• Research and innovation: funding projects through R&D grants, loans and subsidies, which positively impact R&D expenditure and increase innovation.
• Skills: creating new apprenticeship opportunities and developing skill boot camps so communities can hone their skills.
• Local infrastructure: repurposing or purchasing land to build labs and commercial spaces, in turn, building the job market in these local areas.
• Local enterprise and business support: strengthening facilities and providing further support for start-ups and SMEs in the local areas.
• Planning and development: funding the recruitment of dedicated planning teams to deliver complex or large-scale developments.

When will the scheme begin?

Previous Chancellor Kwasi Kwarteng delivered the first mention of the investment zone scheme in the divisive September 2022 mini-budget.

Since then, Chancellor Jeremy Hunt has championed the project, saying:

“I totally support the benefits that investment zones can bring, but we will implement that policy in a way that learns the lessons of when similar models have been tried in the past, and we will make sure they are successful.”

The deadline for expressing interest in becoming part of the scheme ended in October 2022, with the Government aiming to start the rollout over the next two years.

Talk to us about your business.

In his first Spring Budget speech, Chancellor Jeremy Hunt announced a new “full expensing policy” to encourage business investment.

From April 2023 to March 2026, companies can claim 100% capital allowances on qualifying plant and machinery, writing off the cost of investment in one go.

The policy comes as the existing super-deduction, which provides a 130% capital allowance on qualifying plant and machinery investments (plus a 50% first-year allowance for qualifying special rate assets), ended on 31 March 2023.

Because of the new full expensing and 50% first-year allowance, the company can claim £10 million under full expensing and £1 million under the 50% first-year allowance in the year the expenditure is incurred.

The remaining balance of £1 million can be added to the special rate pool in a subsequent accounting period.

The Chancellor said he was introducing the scheme “with an intention to make it permanent as soon as we can responsibly do so.”

Kitty Ussher, chief economist at the Institute of Directors, commented:

“Our economy has been held back in recent years because people running businesses have felt nervous of committing to investment when the climate is so uncertain.

“The introduction of 100% full expensing for the next three years is therefore very welcome, and we urge it to be continued thereafter.”

The Chancellor also announced an enhanced credit for R&D, extensions to creative industry tax reliefs, and a set of 12 new investment zones across the UK.

In his speech on 17 March, Hunt said:

“If the super-deduction was allowed to end without a replacement, we would have fallen down the international league tables for tax competitiveness and damaged growth.

“I could not allow that to happen.

“That means that every single pound a company invests in IT equipment, plant or machinery can be deducted in full and immediately from taxable profits.”

Talk to us about your capital expenses.

The finance sector is making strides in female representation, according to a new report from the Women in Finance charter.

The report shows that the proportion of women in senior management roles across charter signatories rose to 35% in 2022.

Nearly three-quarters of the charter’s signatories increased female representation in senior management, while 6% maintained the same levels as in 2021.

Around half of the participants set ambitions high, aiming to achieve a target of at least 40% — which the top quarter of firms has achieved for the first time since the charter began in 2016.

The Government launched the charter in collaboration with think tank New Financial to encourage gender balance in the financial services sector. It now has over 400 signatories, covering more than a million employees.

Signatories of the charter must monitor their progress against self-created targets for women in senior management and make annual reports to the Treasury.

Treasury Lords minister Baroness Penn said:

“This report should serve as a marker of strong progress but also a reminder that we shouldn’t be complacent. I want to ensure that the Charter continues to be a tool for keeping the sector competitive, innovative, and productive.”