Buy-to-let landlords who own homes within a company will face a higher tax bill when they eventually sell their properties.
Yesterday’s Budget included the scrapping of corporation tax relief on capital gains linked to inflation, although the effects are unlikely to be felt for a number of years.
Companies do not currently pay corporation tax on profits from capital gains driven by inflation. The relief meant businesses were only taxed on real gains.
The business capital gains regime will be brought into line with the rules for individuals, in a move designed to discourage the use of companies as investment vehicles, particularly by large buy-to-let landlords.
Tim Walford-Fitzgerald, private client tax partner at HW Fisher & Company, said: “The CGT avoidance technique of using a company that holds UK property instead of selling the property itself looks set to be shut down.”
Another key change in the Budget also targets buy-to-let landlords who have set up as business enterprises, by freezing the indexation tax relief.
The indexation relief applied to landlords who have owned a property for many years, and allowed gains to be reduced based on the length of ownership. But this will be frozen from January 2018.
Genevieve Moore, of accountants Blick Rothenberg, said: “The proposed freezing of indexation allowance for companies is not unexpected and will have most impact on companies that own properties which they have owned for many years.
“Although this is a proposal for freezing indexation allowance, businesses should be prepared for an eventual abolition of the relief in the future and plan accordingly.”
The clampdown could be the beginning of an attack on assets held in companies, according to Ray Abercromby, of accountants Smith & Williamson.
He said: “Recent buy-to-let reforms have resulted in a more commercial housing industry with many of the smaller holders leaving the market and larger holders incorporating.”
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