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Tax benefits drive surge in landlords forming buy to let companies

A buy to let company creation service claims a huge increase in the number of landlords seeking to incorporate.

GetGround says its seen two-and-a-half times the number of incorporations in the year to the end of August than in the previous 12 month period.

It has also recorded an average 11 per cent increase in incorporations completed month-on-month since January this year alone. 

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The firm claims that a driver for landlord incorporation is the growing awareness and appeal of limited company investing among a very wide customer base. 

In the 12 months to August 2022, the number of first-time landlords investing through GetGround limited companies doubled. The company also reported year-on-year growth in customers based both in the UK and internationally. 

Chief executive Moubin Faizullah Khan says:  “Just as we’re seeing an uptick in interest from investors looking to purchase energy-efficient, new build properties, they are also turning to limited company structures to optimise their finances. From tax efficiencies to personal liability, there are many good reasons why limited company investing makes good business sense, but ultimately it comes down to efficiency. 

“Efficiency is key to investing sustainably, responsibly and profitably. In tougher economic times, the ability for landlords to optimise their buy-to-let portfolios for the long-term is proving crucial and, as our strong company creation numbers month-on-month prove.”

GetGround research conducted in early 2022 found that 81 per cent of UK landlords hold at least a quarter of their property portfolio in limited companies. 

Some 79 per cent of those who invest partially or entirely through limited companies believe that doing so helps them better mitigate the impact of rising inflation than if they were to invest in property in their personal names. 

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    The government will pick up on this and clamp down, just a matter of time.

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    Simon, the government are fully aware of this. Personally I don't think it'll change. A limited company is visible to HMRC so they get their tax take. Also, what do they do about their corporate chums who lavish substantial donations to the Tory Party

     
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    Not because of tax Benefits but because of imposing taxes on Individual Landlords with Section 24 leaving them with no choice,

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    So now a reduced rate of tax is being classed as a benefit?

    Next paying tax will be regarded as a privilege rather than an obligation!

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    I looked into Incorporation but it seems ridiculously expensive. I have been quoted 18-20k. My concern is that if I spend all that money and the Government/Taxman changes their mind.

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    I've looked at it as well, but many of my properties were purchased for peanuts years ago, I would in effect be selling my properties to a company so would be hit with CGT , I don't have any borrowings and share the income with my wife which at present keeps us both just below 40% tax, so for me there would be little point, however with hind sight now I would likely have incorporated when first buying the properties

     
    Bill Wood

    I have two industrial units valued at around £120K each, below the SDLT threshold, that I have incorporated. So starting the company and transfering these properties only cost about £1000. This was mainly to keep me below the 40% tax band.
    An unintended advantage is that I could, If I wanted to, rent out my personally held properties to the company at any rent I like, Or I could buy the industrial units from the company then sell them back at £10K more, taking advantage of the £10K CGT allowance. The possibilities are endless. . . .

     
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    I've gone part way.
    It seemed complicated and expensive to incorporate the personally owned stuff partly due to the permutations of ownership - mine, his, ours, some with son, one with son and ex, etc. While 2 of us were very firmly in the 40% tax bracket the others weren't and there was no desire from any of us to all be tied together in a company structure.
    So we compromised.
    We have 2 limited companies. One to own our most recently purchased properties and one to manage all our properties.
    The main advantages seem to be that we get paid a salary which means some of what was classed as unearned investment income has been converted into earned income which we can then pay into a SIPP, get tax relief on and goes outside our estate so will be available to go some way towards paying the IHT.
    There's a few other nice bits like the tax deductible Christmas do, trivial benefits, a very tax efficient EV and the occasional tax deductible take away if we are out property managing all day. That's the other difference, I now go out property managing. Previously I would have gone out landlording. Exactly the same activity, just one is classed as a job with earned income and the other as a hobby.

    Overall it has complicated life and means 3 lots of paperwork and extra accountancy fees.

    It's a shame landlords aren't treated as proper businesses in the first place.

    Bill Wood

    "We have 2 limited companies. One to own our most recently purchased properties and one to manage all our properties."
    This sounds a good idea, keep ownership of the properties, but divert the income to the company, and get a salary for managing them. Have I got that right?
    All very flexible, moneywise.

     
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    Bill - it only makes some of the money earned. The managing company can charge up to 15% of the rent to collect the rent and manage the properties. So it depends how much your annual rental turnover is as to whether it's worthwhile. Ours works very nicely with the current thresholds for NI. It probably wouldn't be worth the accountancy fee for only one or 2 properties.

     
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    A couple of other options - if your "Managment / Refurb company" made a loss you can offset that against the other companies profits - your only paying tax on the profit not the turnover -
    Other option which I have gone down is an LLP - problem with a Limited company is that whilst corporation tax is lower than higher rate threshold you still get taxed as and when you wish to withdraw funds from it - assuming its not a Directors loan repayment. With an LLP you can withdraw much more flexibly between the partners, subject to where they are at. Also if you look at all the big accountancy / legal firms & all the great & good in the dark corridors of power they all operate LLPs & thus (in theory) far less likely to change the tax law in the future to screw themselves.
    Also has benefits if you wish to pass on the portfolio to children etc as they can be brought onboard as partners as and when suits.

     
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    With LLPs, if you bring in your children as partners then how do you deal with inheritance tax when you die?

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    There is no IHT liability as the asset is owned by the LLP and not you, your estate outside of the LLP is obviously subject to IHT, but with proper planning that should be minimal.

     
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