Four in ten landlords ‘thinking of forming a limited company’

Wed 16 Mar 2016

Four in ten landlords are either already looking into forming a limited company or will do so in the coming months.

New research by the National Landlords Association (NLA) shows 40 per cent of landlords have set aside time to explore the option as they seek to limit their exposure to changes to buy-to-let mortgage tax relief.

Chancellor George Osborne announced in last summer’s Budget that mortgage interest relief will be restricted to the basic rate of income tax (20 per cent) by 2021 - and the changes are due to be phased in from April 2017.

One way to minimise the impact of the regulation is for landlords to set up a limited company, as those who trade as a limited company will be exempt from the ruling. They will instead be able to pay corporation tax on their profit alone.

The NLA has previously described the legislation as the ‘Turnover Tax’, as it essentially means landlords will in future pay tax based upon their rental income rather than their profits.

While only one per cent of landlords have so far incorporated their portfolio into a limited company, thousands across the country are already seriously considering it.

Although the NLA admits the cost associated with forming a limited company will put some landlords off the idea - as capital gains tax and stamp duty will be applied in many cases - individuals should do their sums in order to work out if such a move makes financial sense for their portfolio.

In contrast to the 40 per cent who said they will think about setting up a limited company, 30 per cent indicated they have no interest in doing so at the current time.

For specialist advice on how to get the best return from your property, contact your local Leaders branch.