A senior letting agency boss has warned landlords to be on their guard if they are planning on setting up a limited company in the wake of the Chancellor’s announcement in the Autumn Statement.
Anita Mehra, managing director of Benham & Reeves Residential Lettings, says Mr Osborne’s cap of mortgage relief for landlords alongside an increase of 3% in stamp duty on buy-to-let properties has seen the industry, ‘reel.’
Due to this, Mehra states that many landlords have approached her firm about information on putting their property portfolio in a limited company.
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This is becoming more popular, due to the restriction on tax relief on mortgages interest only affecting individual investors and unincorporated residential property organisations, not limited companies.
Mehra notes that, ‘before going down this route, landlords need to think carefully. Transferring an existing property portfolio into a limited company structure could potentially attract Capital Gains Tax based on the market value of the property although such a move may be deferred on incorporation and allowing the landlord to roll the gain into the cost of the shares.’[1]
Instead, Mehra believes that landlords should discuss their issues with their accountants before making any decision.
Senior agent warns on landlords setting up ltd companies
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‘The transfer can also see the landlord facing a hefty Stamp Duty Land Tax bill as each property is effectively considered to be sold at market value to the company even if there may be no consideration,’ Mehra said.[1]
An example Mehra gave is that people purchasing property through a company for the first time, overseas companies or other similar vehicles are permitted to pay 15% Stamp Duty Land Tax if the purchase price exceeds £1m. From April 2016, this will drop to £500,000 if the property is not for rental investment.
[1] https://www.lettingagenttoday.co.uk/breaking-news/2015/12/senior-agent-urges-caution-over-setting-up-buy-to-let-limited-companies