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Incorporating ‘doesn’t stack up’ for majority of landlords
Four in 10 landlords (40 per cent)
are either seriously considering
forming a limited company in order
to limit their exposure to changes
that will restrict mortgage interest
tax relief – announced in last year’s
Summer Budget – or will be looking
into the option in the coming months,
according to latest research from the
National Landlords Association (NLA).
However, the research found that
so far only one per cent had actually
incorporated, which the NLA says can be
explained by the high cost of transferring
property held personally into a company.
The findings also show that three in 10
(31 per cent) have no intention of moving
their portfolio to a limited company, and
that 29 per cent are still unsure about
whether they will incorporate or not.
Mortgage interest relief for individual
residential landlords, which will be
restricted to the basic rate of income tax
(20 per cent) by 2021, will begin to be
phased back from April 2017.
The changes will mean that landlords
will no longer be able to deduct the cost
of mortgage interest before declaring
their taxable profit, and will instead
receive a tax credit of 20pc of their
mortgage interest costs.
The NLA has labelled the changes
the Turnover Tax, because landlords’
tax will be calculated on rental income
they earn, rather than their profits,
forcing many basic rate payers into
a higher bracket and leaving higher
and additional rate taxpayers with
considerably bigger tax bills.
Landlords structured as companies will
be exempt from the changes, instead
paying corporation tax – currently 20 per
cent – on their profits alone.
Richard Lambert, Chief Executive
Officer at the NLA, said: “Transferring
personally held property to a limited
company isn’t a straightforward process,
so it’s not surprising that so few have
taken this action so far.
“Landlords need to do their research
but many will realise that incorporating
simply doesn’t stack up financially; doing
so will incur capital gains and potential
stamp duty charges, which means the
process may be prohibitively expensive.”
Richard Price, Executive Director of
the UK Association of Letting Agents
(UKALA), said: “While just one per cent
have incorporated so far a significant
proportion are still considering the move.
“If landlords follow through with these
intentions then it’s likely that more and
more will take a hands-on approach to
managing their portfolios in the future,
which would mean less business to go
around for agents, and certainly less of a
need for full service offerings.
“The changes to taxation are forcing
landlords to re-evaluate their businesses
and their place in the market, so our
advice for agents is to begin talking to
your cli [