Landlords warned to wait until Budget before incorporating
Tuesday 28 February 2017
Landlords are warned to wait before becoming incorporated ahead of changes to tax relief in case the government clamps down on limited companies.
The National Landlords Association (NLA) urged members to hold off from the move after the Chancellor suggested the Treasury was concerned by the drop in tax revenues as businesses across the economy incorporated to cut their tax liability.
Richard Lambert, chief executive of the NLA, said landlords should wait to see whether a consultation is launched in next week’s Budget before making a decision.
He said: “Over the past year more than one hundred thousand landlords have formed a limited company in order to beat the tax changes, and this overlaps with an increasing intention to look to commercial loans to fund future purchases.
“While commercial loans are available to non-incorporated landlords, they tend to be a source of funding more commonly used by limited companies looking to expand their property portfolios, so we’d expect to see this trend develop as the year plays out.”
The proportion of landlords intending to fund their property purchases with commercial loans has doubled over the past 18 months in a bid to off-set the looming BTL tax changes.
Research by the NLA shows that the proportion of landlords planning to use commercial loans rose from 10 per cent in July 2015 – when the tax changes were announced – to 19 per cent at the end of 2016.
The changes to taxation, due to kick in from April over the next four years, will prevent landlords with BTL mortgages from deducting their interest payments or any other finance-related costs from their turnover before declaring their taxable income.
This increase comes as more and more landlords have told the NLA’s quarterly landlord panel that they would form a limited company to preserve the mortgage interest relief.
In January 2016 the proportion of landlords who said they would incorporate stood at 1 per cent – but by January 2017, it is 6 per cent, a rise from 20,000 to 120,000.
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