Dividend and NI tax rises: is an SPV still the right choice for property investment?

Nadeem Raziq BA (Hons), FCCA, ATT

Head of Tax

The Prime Minister’s announcement of a 1.25 percentage point rise in tax on dividend shares may come as a blow to property investors operating via a limited company, particularly after the increase to corporation tax announced in the March budget.

In this blog, our Head of Tax, Nadeem Raziq, breaks down exactly what the new tax changes will mean for company directors and looks at whether an SPV is still the right choice for investing in property.

To summarise, these are the tax increases company directors are facing:

• 1.25% increase on dividends from 6 April 2022

• Employer and employee National Insurance 1.25% increase from 6 April 2022

• Corporation Tax will increase up to 25% from April 2023

• Personal allowances frozen at £12,570 from 2021 to 5 April 2026

Corporation tax

Corporation tax is currently 19%, however this is set to increase by 6% in 2023 to 25%.

• The myth - Many headlines suggest that all companies will be taxed 25% from April 2023. This is not the case.

• The reality - The 19% rate will remain as a “small profits rate” for companies with profits of £50k or less. This equates to 70% of companies.

Additionally, the new rate will be tapered on profits above £50k. This means that only businesses with profits over £250k will be taxed the full 25%, which is around 10% of companies.

Tax on dividends

Taxes on dividends will increase by 1.25 percentage points from 6 April 2022.

This means that after the £2,000 tax-free allowance, the current dividend rate will increase as follows:

• Basic rate taxpayers - 7.5% to 8.75%

• Higher rate taxpayers - 32.5% to 33.75%

• Additional rate taxpayers - 38.1% to 39.35%

If you're planning to buy more properties, keeping cash in your SPV can be a tax efficient way to save up as you only pay taxes on dividends when you take profit out of your company.

National Insurance

Employee’s and Employer’s National Insurance contributions will increase by 1.25% from 6 April 2022 to 5 April 2023

• From 6 April 2023, a health and social care levy charge of 1.25% will be chargeable to both employed and self-employed individuals.

• Downing Street says a typical basic rate taxpayer earning £24,100 would contribute annually £180, while a higher rate taxpayer on £67,100 would pay £715 per year.

• If you employ staff or family members through your property company, this will mean the company's National Insurance bill for both employer and employee will increase from 6 April 2022, and the benefits of remunerating yourself above the NI threshold will start to diminish.

Considering these tax rises, is an SPV or limited company still beneficial for property investors?

What can you do to mitigate these tax increases?

Be proactive in your tax planning for extracting profits from your company

• Look at the structure of your company: adding a family member, shareholders, ABC shares etc.

Make sure your ISA and pensions are tax efficient

• Look at investing or increasing the amounts you contribute to certain pension schemes: SIPP, SSAS etc.

Change business tactics and reinvest profits in the company rather than paying yourself

• For instance, keeping money within your company to fund your next property purchase.

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