Is Tony Blair leading the way for landlords?
Tuesday 16 May 2017
Former PM Tony Blair has set up a company to manage his empire of BTL properties, joining a growing number of landlords who are opting for incorporation to beat harsh new tax rules.
The news emerges over the bank holiday weekend, when he announced his return to front-line politics with the aim of fighting Brexit.
Record numbers of BTL investors are now using limited companies to secure finance to buy property, according to industry statistics.
The proportion of homes available for rent in the UK, owned by a company landlord, reached 20 per cent in the first quarter of 2017 - the highest number since records began in 2010.
Setting up a limited company is one of several ways in which investors responded to recent changes within the private rented sector: last year’s stamp duty hike and last month’s cuts to mortgage tax relief are clearly not being accepted without a fight.
The cost of finance such as mortgage interest which can be deducted is to be reduced by 25 per cent a year until 2020 when no relief will be given – hitting many landlords hard.
Buying a property as a limited company can lead to savings, but this is not the case for all landlords.
Personal circumstances, income and the number of properties owned, are all key factors - so each case is different and investors should take advice on whether or not this is the best option for them.
The controversial ex-premier has a long-standing involvement with property investment through his family: Tony Blair, his wife Cherie and their eldest son Euan already own 38 homes worth an estimated £33m.
According to the Daily Mail, their portfolio includes flats in north-west England which Mrs Blair and their son let out via an existing company, Oldbury Residential Ltd, which holds investments worth £2.4m in the year ending April 2016.
Now Mr and Mrs Blair have set up another company, Harcourt Ventures Ltd, to let and manage properties, with Tony Blair owning half of the shares and his wife named as the sole director.
Last year Mrs Blair spearheaded an unsuccessful legal challenge against Section 24 of the Finance (No.2) Act 2015.
Her law firm Omnia Strategy claimed that the changes, which were finally introduced last month, breached landlords’ human rights.
The judicial review at the High Court was backed by landlords Steve Bolton and Chris Cooper.
Speaking after the case in October last year, Mrs Blair said: “We know the case has been supported and followed with interest by a large number of individual landlords. Many of these landlords now face challenging times ahead.
“From the outset, the legal process was just one aspect of our clients’ fight against this unfair measure. Together with their impressive and growing coalition, they will continue to engage with the government, and the legal team wishes them every success.”
But are the Blairs setting an example for other landlords?
The family has reportedly banked at least £1.7m in profits from buying and selling nine properties, and they also have an extensive portfolio of private homes, including a £9m five-storey Georgian townhouse which they purchased in 2004 and a £10m Grade I-listed Buckinghamshire manor house.
If you’re not in their fortunate position, paying down the debt on your BTL mortgage to reduce your interest payments might not be an option.
But you still might consider moving the property into a limited company.
This, in effect, is like selling your property to a company which you own but you would still have to pay stamp duty land tax on the transaction, which now stands at 3 per cent.
Capital gains charged on the transfer to the company may be deferred until it is sold again and profits are taxed at 20 per cent, though this is set to reduce to 18 per cent by 2020.
This deferment of capital gains tax is called incorporation relief, but in order to qualify you have to demonstrate that the property is part of an actual business rather than just a passive investment.
One way of doing this could be to provide additional services such as cleaning or gardening.If the property is mortgaged you need to consider how the company will raise finance to take over the borrowing on the property.
And if the company sells the property it will pay corporation tax on the gain and shareholders will suffer capital gains tax on the sale of their shares to get the cash out of the business, which effectively means a double tax charge.
You can take up to £5,000 per year as a tax-free dividend but any income you take over this amount will be charged at 7.5 per cent as a basic-rate taxpayer, 32.5 per cent as a higher-rate payer and 38.1 per cent as an additional-rate payer.
Most financial experts advise that the statutory obligations and costs involved in running a company outweigh any tax savings for most landlords unless they have a sizeable property portfolio.
Dave Murphy, of Tax Advantage, said: “There’s little doubt that landlords will be taking a long, hard look at their accounts right now, but for most they are best carrying on as normal.
“For some who are higher rate taxpayers they will feel a bit of pain on the loss of higher rate relief on mortgage interest, but property still remains a strong alternative to other investments.”
Simple Landlords Insurance teamed up with Tax Advantage, who specialise in landlord tax affairs, to produce a projection which shows how a basic-rate taxpaying landlord could become a higher-rate taxpayer between 2017-2020:
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