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’”.

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Latest Comments

Paul
Paul 25 May 2016

Estate agents are pathetic when it comes to fees. They have this 'I had to do it at 1% because that's what the others were quoting' mentality. We are the most expensive agents in our area, charging double...

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HMO Midlands Landlady
HMO Midlands Landlady 24 May 2016

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CommercialTrust
CommercialTrust 20 May 2016

With the bulk of the market controlled by large developers, profit rather than necessity determine the pace at which homes are built. There are hundreds of thousands of plots that have planning permission...

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Johna
Johna 20 May 2016

"Easier said than done" is what I would say. Of course, it would be more than great to have more in quality and affordability, but I do not trust talk anymore.. What is said is not what is happening.

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Johna
Johna 20 May 2016

in my humble opinion being fair like THE most important! I myself have had bad experience with unfair landlords... not to mention that I know how to do a proper end of tenancy cleaning since I am a fantastic...

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richardrawlings
richardrawlings 18 May 2016

NB - even if we doubled our commission levels in the UK, we'd still be by far the cheapest agents in the entire world.

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Agent_PeeBee
Agent_PeeBee 18 May 2016

Clueless. Someone needs to take these people's computers away from them so they can do no more harm than they already have.

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richardrawlings
richardrawlings 18 May 2016

Nonsense! The cost of selling a house nowadays has little bearing on the fees charged. Don't believe your own spin on this. Fees have spiralled down to pathetic levels in areas where weak agents have allowed...

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Simon Oliver
Simon Oliver 16 May 2016

The best solution is to buy a property that has built-in income generating potential: a nice house with a couple of gites in the grounds is a good start. In France, the rune of thumb is that one 2-bedroomed...

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WPD
WPD 12 May 2016

I suggest the answer is to have the notary system being one legal person who represents both parties. Having experienced it a couple of times in France it was a dream compared to our dysfunctional system....

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warren
warren 03 May 2016

It's enough to make me weep into my Pimm's :(

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james anderson 03 May 2016

The sad demise of the croquet lawn...

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