Tax benefits drive surge in landlords forming buy to ...

Simon Logan
12 September 2022 06:34 AM

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

Grumpy Doug
12 September 2022 08:54 AM

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

Michael Foley
12 September 2022 06:52 AM

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

Robert Brown
12 September 2022 08:59 AM

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!

Robert Shread
12 September 2022 10:13 AM

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.

Andrew townshend
12 September 2022 10:27 AM

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
12 September 2022 11:53 AM

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. . . .

Jo Westlake
12 September 2022 11:40 AM

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
12 September 2022 12:02 PM

"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.

Jo Westlake
12 September 2022 12:52 PM

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.

Neil Finlay
12 September 2022 20:12 PM

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.

Mohammad Mirza
12 September 2022 21:39 PM

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

Neil Finlay
13 September 2022 07:48 AM

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.