Change to taxation of Landlords

Considering
Incorporation?
Two important questions must be
considered when discussing the
incorporation of a property portfolio:
1. Will incorporation be more efficient
than personal ownership?
2. What costs will be incurred in
incorporation?
Looking at the first question, in
considering whether incorporation is a
better structure than personal ownership
there are a number of points that must be
considered:
- Does the client require the income for
subsistence, or would prefer it was
retained / reinvested in the property
business?
- Are they a basic, higher or additional
rate taxpayer?
- How highly leveraged is the portfolio,
and therefore, how affected might your
client’s property portfolio be by these
changes?
- Are they primarily focused on reducing
costs, or are the other advantages of a
limited company (such as limitation of
liability) also considered attractive?
If there’s one thing we’ve learned on
advising landlords over the years, it’s that
there really is no one-size-fits-all
approach to advice in this area. Only by
ensuring the landlord discusses their
objectives in detail with an experienced
practitioner is it possible to determine the
right investment structure.
Next, when determining the costs on
incorporation, we must first mention that
we can’t go into detail. However, in
general terms, alongside the set up and
compliance costs of a company (which
are not too expensive), a transfer of
property into a limited company would
typically result in capital gains tax and
stamp duty land tax consequences (as if
it were a market value sale to a third
party).
This can be costly. However, statutory
reliefs are available to reduce – or even
eliminate – these tax charges where
certain conditions are met and, where
appropriately structured, additional tax
advantages can arise, such as an uplift
in base cost of the properties. It’s
important to note that this is all about
making use of tax reliefs in the way they
are intended in light of recent case law
and HMRC practice.