Incorporating 'doesn't stack up' for majority of landlords

Incorporating 'doesn't stack up' for majority of landlords

The latest research from the National Landlords Association (NLA) has claimed that 40% of landlords are either seriously considering forming a limited company in order to limit their exposure to changes that will restrict mortgage interest – announced in last year’s Summer Budget – or will be looking into the option in the coming months.

However, the research found that so far only one per cent had actually incorporated, which the NLA says can be explained by the high cost of transferring property held personally into a company.

The findings also show that 31% have no intention of moving their portfolio to a limited company, and that 29% still unsure about whether they will incorporate or not.

Mortgage interest relief for individual residential landlords, which will be restricted to the basic rate of income tax (20%) by 2021, will begin to be phased back from April 2017.

The changes will mean that landlords will no longer be able to deduct the cost of mortgage interest before declaring their taxable profit, and will instead receive a tax credit of 20pc of their mortgage interest costs.

The NLA has labelled the changes the Turnover Tax, because landlords’ tax will be calculated on rental income they earn, rather than their profits, forcing many basic rate payers into a higher bracket and leaving higher and additional-rate payers with considerably bigger tax bills.


Landlords structured as companies will be exempt from the changes, instead paying corporation tax – currently 20 per cent – on their profits alone.

Richard Lambert, Chief Executive Officer at the NLA, said: “Transferring personally held property to a limited company isn’t a straightforward process, so it’s not surprising that so few have taken this action so far.

Landlords need to do their research but many will realise that incorporating simply doesn’t stack up financially; doing so will incur capital gains and potential stamp duty charges, which means the process may be prohibitively expensive”.

Richard Price, Executive Director of the UK Association of Letting Agents (UKALA), said: “While just one per cent have incorporated so far a significant proportion are still considering the move.If landlords follow through with these intentions then it’s likely that more and more will take a hands-on approach to managing their portfolios in the future, which would mean less business to go around for agents, and certainly less of a need for full service offerings.

The changes to taxation are forcing landlords to re-evaluate their businesses and their place in the market, so our advice for agents is to begin talking to your clients about their intentions over the next few years, and consider how you’ll meet their changing needs in a way that is distinct from your rivals’”.

Join our mailing list:

Leave a comment



Our Next Event

Buy-to-Let Roadshow April 2017

Buy-to-Let Roadshow April 2017

Crewe - 18/04/2017

Northampton - 19/04/2017

Essex - 20/04/2017

Brighton - 21/04/2017

Register now

Latest Comments

MBM Homelets
MBM Homelets 23 Mar 2017

Although this is a very positive step, there is little or no guarantee of the standard of workmanship employed by the tenants. We have had experience of a professionally decorated property being ' painted'...

view article
ajay
ajay 21 Mar 2017

How is the "robust evidence" looking now?

view article
NathanG
NathanG 20 Mar 2017

I've been watching the series so far and am completely baffled by the cases that were presented. Though, I don't think that we can protect ourselves from every scam possible - it will just make the scammers...

view article
Landlady14
Landlady14 01 Mar 2017

You would think so Niraj Shah! My experience only proves that there are varying qualitiers of professional in all aspects of property letting. None of the ones I have dealt with, from letting agents to...

view article
Mark
Mark 01 Mar 2017

Thanks for this article. Hopefully one day everybody's lifestyle will be eco-sustainable.

view article
Ben Taylor
Ben Taylor 28 Feb 2017

I was convinced that London was the most expensive!

view article
Alan Read
Alan Read 28 Feb 2017

Australia are leading the way in this I think. The trouble with Britain is we don't get enough sun to make use of solar power.

view article
James Powell
James Powell 27 Feb 2017

This is a very good news.

view article
DanHumphreys
DanHumphreys 27 Feb 2017

It sounds like a good idea. Anything to help the younger generation get a foothold.

view article
Matt
Matt 20 Feb 2017

Is this fake news?

view article
Matthew Hollywood
Matthew Hollywood 07 Feb 2017

Matthew Hollywood - Director Mishon Mackay Land & New Homes - Brighton The shortage of New Homes is in part effected by the lack of land sales. Land sales are held back because there is a disparity between...

view article
CommercialTrust
CommercialTrust 30 Jan 2017

Hi Graham, Would be interesting to see the above figure calculated against an investment via a Lt Company /SPV structure and if the investor found themselves pushed in to the higher tax bracket. Mortgage...

view article

Related stories

More articles from Landlords

Buy-to-Let Roadshow
April 2017

18th-21st April

4 days
7 specialists
4 locations
Free to attend

Click here to register now