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UK Property Income Soars to £48.8 Billion for Landlords

Published by Chirag
Published Date: November 2, 2023

In a remarkable financial upswing, unincorporated landlords in the United Kingdom reported a total property income of £48.8 billion during the 2021-22 tax year. This figure represents a substantial increase from the previous year's earnings of £46.3 billion, as per data provided by HMRC.

Notably, the self-assessment tax returns for this period were submitted by 2.79 million landlords, with the majority operating as individual buy-to-let landlords. An additional 300,000 partnerships involved in rental property management contributed to a combined income of £6.17 billion.

Property Income Surges: UK Landlords Reap the Rewards

This robust growth in property income comes on the back of a steady climb in recent years. Between 2017 and 2022, the UK property income experienced a notable 10% increase. This upward trajectory can be attributed to a surge in the average income per landlord, which reached £16,700, and a noticeable uptick in the number of landlords, with an increase of 100,000 individuals entering the sector.

Property Income

Diving into the financial specifics of these earnings, finance costs emerged as the dominant category of expenses claimed. Unincorporated landlords accounted for a substantial £6.85 billion in finance-related expenses during the 2021-22 period, making up 29% of all expenses claimed against UK property income.

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Expenses in Focus: Key Categories for Landlords

The most frequently claimed expenses include rent, rates, insurance, and expenses related to repairs and maintenance. Interestingly, 67% of unincorporated landlords declared expenses in these categories, demonstrating a 6% increase in claims.

However, a noteworthy shift is observed in the landlord landscape. Recent research conducted by Paragon Bank revealed a significant trend: approximately three-quarters of landlords planning to acquire new rental properties in the next year intend to adopt a Limited Company Structure. This strategic choice is motivated by the desire to optimise tax efficiency.

Property Income

Limited companies can deduct Mortgage Interest from their company income, which is subject to Corporation Tax rates. This approach stands in contrast to individual landlords who are taxed at their personal income tax rate. The corporation tax rate is 19% for companies with profits under £50,000, gradually increasing to a standard rate of 25%.

Adapting to a Changing Tax Landscape: The Shift to Limited Companies

These changes reflect the evolving tax environment for property income. The tax landscape for individual landlords who rent out residential properties has undergone significant modifications in recent years. These include an increase in Capital Gains Tax (CGT) liabilities upon selling residential properties, the introduction of a 3% Stamp Duty Land Tax(SDLT) surcharge on property purchases, and the removal of higher-rate income tax relief for buy-to-let loan interest. These changes have motivated many landlords to consider limited company structures to navigate the evolving tax landscape.

As the property market continues to evolve and regulations shape the financial dynamics for landlords, these trends indicate a growing focus on tax optimisation and efficiency in the property investment landscape.

Chirag
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