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Leading lettings agency takes cautious line on landlord incorporation

One of London’s major letting agencies is urging landlords to take a cautious approach to whether they should incorporate in a bid to reduce their tax liability following George Osborne’s recent fiscal changes hitting the private rental sector.

“For existing landlords, it may not make financial sense to incorporate their existing portfolio. In effect, these landlords would have to “sell” their portfolio to their new company, thereby incurring stamp duty land taxes in doing so” explains Vidhur Mehra, finance director at Benham & Reeves Residential Lettings.

Mehra says the savings made on mortgage relief are unlikely to be enough to mitigate the five to 12 per cent SDLT for quite some time. There are certain circumstances in which the SDLT would not be payable but for most landlords the tax would be compulsory. There is also a possibility of triggering a capital gains tax if incorporation relief cannot be claimed.

However, Mehra says the bigger question is whether new property investors or existing landlords seeking to add to their portfolio should do so through a company. 

BRRL says that for most investors – even high rate tax payers – it still pays to buy the property in one’s own name rather than through a company. 

Although the monthly rental profit may be higher for the company as it does not pay the higher rates of tax, ultimately the private landlord comes out ahead financially once dividends or CGT on liquidation following the sale of the property are taken into account.  

To realise the company’s assets, the company either has to issue a dividend or will have to be liquidated which will trigger CGT on the distribution that has already been subject to corporation tax. What’s more, mortgages are more difficult for companies to obtain and are subject to commercial rates, thereby eroding the mortgage relief gains.

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    Existing landlords will not want to sell,while people who see no income on money in bank,through low interest will continue to want to buy,making house prices rise.Interference with demand like Help to Buy,pushes up prices too.

  • Adam Hosker

    Somehwat agree with Vidhur Mehra on keeping properties in personal name (already owned).
    I do disagree with him on purchaseing new properties - he seems to base his proposals on landlords "benefiting" when selling up. That is property trading, landlords buy to hold property. In addition Vidhur Mehra will be aware of the benefits of selling the shares instead of the property - saving on SDLT, etc..

    Nevermind all that, what Vidhur Mehra says is not personal advice - you should speak to your accountant.

    Where Vidhur Mehra is incorrect is that mortgages for limited companies are not "difficult to obtain" and nor are they "subject to commercial rates". Many rates are dropping and two lenders have matched LTD Co rates to Personal Rates.

    In addition new BTL Affordability rules by the PRA will mean your "TAX" is taken into account and therefore it may be more difficult to obtain a mortgage in your personal name than in a LTD company name in the fututre.

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    'Mehra says the savings made on mortgage relief are unlikely to be enough to mitigate the five to 12 per cent SDLT for quite some time.' For sure they won't be enough.. I hope to hear some positive news about it.


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