As stealth taxes go, the adverse tax changes for buy-to-let landlords (punishing rates of Stamp Duty and restricting tax relief on mortgage interest) are not very stealthy. Having said that, because of the two-year delay in implementation, many landlords are only just realising that their annual tax will increase, potentially sharply. You may conclude that George Osborne, who came up with these changes, doesn’t like private landlords. Don’t we need more houses for people to rent, not less? Perhaps he doesn’t like those champagne socialists Tony & Cherie Blair, certainly it seems to have annoyed the latter judging by her court action last year to try and stop the measures. Looking at the size and value of their portfolio, they can certainly afford to pay a bit of extra tax for the common good.
For some strange illogical reason, companies are not affected by the new rules. Perhaps not unsurprisingly, this has led to a rush by landlords to incorporate. For those new to buy-to-let, assuming the rules are not changed for companies, it’s probably not a bad idea, as undistributed profits, including those used to pay down debt, are taxed at decreasing company rates of tax, beneficial if the company’s owners enjoy other personal income. Needless to say, anyone contemplating corporate ownership of buy-to-lets needs to obtain expert tax advice relevant to their circumstances as there some potentially negative tax outcomes, for example, to Capital Gains and Inheritance Tax.
However, for existing landlords, it’s a much harder decision as the cost of transferring pre-owned properties into a company is daunting – Stamp Duty, potential Capital Gains Tax, conveyancing and re-mortgage costs. You would have to take a long-term view to justify the cost and hassle. And in any case, who’s to say that as soon as you’ve made the transfer, they won’t extend the tax changes to limited companies?
But hold-on, salvation may be at hand, because as is often the case, human ingenuity overcomes barriers put in place by the mean-spirited. Some clever people have come up with a plan to enable you to have your cake and eat-it-too, by creating a corporate umbrella which enables you to take advantage of corporate tax rules without actually transferring legal title therefore avoiding all the problems. No Stamp Duty, no refinancing required, defer tax payable for 21 months, tax-free dividends, offset all costs against rent and stop the clock on Capital Gains Tax. Almost sounds too good to be true?
Contact us to find out if scheme is suitable for you. We can help you reduce your taxes but still stay on the right side of HMRC.
Most of our buy to let clients are sole traders. Learn more about being a sole trader.
Disclaimer: While every effort has been made to provide, valuable, accurate information in these publications, their content is not intended to replace the advice that a professional would give, taking your particular circumstances into account. This firm, contractors and employees do not accept any responsibility or any form of liability for reliance upon or use of the contents of these articles or blogs.