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Renewed concern over buy to let landlord-companies

A critic of the suggestion that buy to let landlords could set up companies to ‘beat’ the ending of tax breaks has renewed his concern at the tactic.

Last week we reported that accountancy firm Jeffreys Henry LLP was warning that there were pitfalls in this approach - transferring existing property into a limited company may incur a Capital Gains Tax and Stamp Duty Land Tax liability. 

It suggested that some existing landlords may be better off shifting rental income to spouses on lower tax bands before looking at creating limited companies.

Now Bhimal Hira of Jeffreys Henry has told Letting Agent Today: “Almost every landlord I have spoken to since the Budget is asking about a limited company but one of the biggest barriers and always overlooked (apart from the upfront tax costs) is buy to let mortgages.”

He continues: “Generally, unless you’re a serial buy to let landlord with a proven track record, high street lenders won’t lend to a limited company. There are a very, very limited number of specialist finance providers that do – but their arrangement fees and interest is much higher, and again, they only lend to established landlords with a proven track record and multiple properties.”

In the Budget in early July, Chancellor George Osborne announced that mortgage interest payments and arrangement fees incurred when taking out buy to let mortgages will be restricted to the basic rate of tax, currently 20 per cent.

This will be phased in over four years from April 2017.

Under current rules, a 45 per cent taxpayer with an annual rental income of £10,000 and annual mortgage interest of £6,000 would get a tax bill on the rental profit of £1,800. But this tax bill could rise to as much as £3,200 under the new plans.

Immediate reaction to the news suggested that landlords setting up companies might be a way of circumnavigating this extra liability.

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    I looked at putting my properties into a limited company. Took me less than five minutes to work out that the costs (higher mortgage rate and CGT) outweighed the potential saving by a mile. Remember that under the new rules you can still off-set mortgage interest, its just that its going to be restricted to 20%, and even this is being phased in over a number of years.

    One observation about transferring properties to a lower tax rate spouse - remember that you have legally given your property away and your spouse, not you, is now the legal owner of the properties. If you get divorced at a later date you can probably kiss goodbye to them, even if you owned the properties before the marriage.

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    • A G
    • 31 July 2015 16:13 PM

    Sign the petition: https://petition.parliament.uk/petitions/104880

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