News
Landlords avoid taxes by setting up new companies
Tuesday 6th December 2016
Private landlords around the UK are setting up new companies for their portfolios to avoid being hit with the new taxes being phased in from April next year. Others are transferring properties into the names of family members or simply increasing rents to cover the loss in income.
The tax introductions will stop landlords from deducting mortgage interest from their tax bill. Instead, they will be assessed for a tax rate based on their gross income, including rent, and then receive a 20 per cent rebate.
Buy-to-let owners are making this switch as anyone holding properties in a limited company structure will be unaffected as mortgage interest will remain tax deductible and the corporate tax rate is a flat 20 per cent, falling to 17 per cent in the next five years.
Research conducted by Kent Reliance building society states "100,000 limited company loans were taken out by landlords buying properties in the first nine months of this year, double the number for all of 2015".¹
Demand for this type of arrangement is likely to intensify as 11 per cent of landlords state they have already incorporated, or have moved holdings to a lower-tax-rate paying spouse or partner with a further 25 per cent are considering doing so.
However, a number of experts have highlighted issues concerning incorporation. David Hollingworth, of mortgage broker London & Country has said "You cannot just transfer a property into a company. You have to sell it to the company and that could trigger other costs."
"How will you get your income out of the company?" he added when citing administration costs and filing company accounts. Something landlords will have to consider.
_¹source http://www.kentrelianceforintermediaries.co.uk/resources/campaigns/buy-to-let-britain-report_