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

CommercialTrust
CommercialTrust 30 Jun 2016

This is great news for buyers and investors in a period of significant uncertainty. The 10-year buy-to-let fix at 3.99% in particular is excellent, a clear 100 bps ahead of the nearest competition. Though...

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Lee
Lee 30 Jun 2016

Let's see what happens to north-east property prices when Nissan announce they're leaving.

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DmitriKara
DmitriKara 29 Jun 2016

I just read another article about eviction rising and this was exactly what was on my mind, Housing has become "cat and mouse"...

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DmitriKara
DmitriKara 29 Jun 2016

I am really not surprised. I've seen one too many impudent tenants and in my humble opinion renters have one too many privileges and options to abuse heir landlord in so many ways...

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DmitriKara
DmitriKara 29 Jun 2016

There is still so much uncertainty and I will surely step back and see what's happening before I could make any decisions on my end.

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ChristinaReedUK
ChristinaReedUK 20 Jun 2016

I don't understand why it's always a war between the two sides. Either, way the landlord is probably keeping a detailed inventory and will see the changes you've made. I just don't understand why there...

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NathanGreen
NathanGreen 16 Jun 2016

Seeing that the tenants are quite satisfied with their landlords and the properties is indeed great. I wonder, though, what is the situation in London alone? The tenants face sky-high rent levels in the...

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AndiMur
AndiMur 15 Jun 2016

TheGuardian published the same forecast. But on the other hand, professional brokers express different opinions. According totranio.com, an exit from the EU would not affect the demand/supply imbalance...

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Gary Holmes
Gary Holmes 14 Jun 2016

Having a professionally completed inventory at check-in and check-out is clearly (to me at least) of minor value. Tenants make un-authorised modifications and/or walk off with items that belong to the

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Violet Gibson
Violet Gibson 14 Jun 2016

Cautious people think buying off-plan is reckless, but over the past few years investors have literally made fortunes.Pre-release prices have obvious benefits for the developer, who gets instant finance...

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Kate Windleton
Kate Windleton 14 Jun 2016

An interesting research indeed. I guess that is in complete contrast with the United States where people often move from one coast to another. It will be interesting to hear the trends for people moving...

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NathanGreen
NathanGreen 14 Jun 2016

I think it all depends on the market conditions and how well your company is doing. You will agree that you can't demand more when you're killing yourself just to hang in there. Sometimes you need all

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