Chancellor George Osborne’s tax onslaught aimed at buy to let landlords is leading many to consider moving their property portfolios into companies to save money.
Property investors must now pay a 3% stamp duty surcharge on buying homes and have lost the 10% wear-and-tear allowance on furnished rentals in recent weeks.
From next year, property business profits will be calculated differently and higher rate tax relief on mortgage interest payments will start reducing by 50% by April 2019.
As a result, a survey for Paragon Mortgages shows that 41% of landlords are thinking about changing their business status by incorporating.
Although this means losing higher rate mortgage interest relief, net profit calculations are worked out on the same basis as other businesses.
This should lead to an overall lower taxable profit for landlords, who can then decide whether to draw down profits or leave them invested in the company.
The mortgage lender’s survey found that 14% of landlords with 20 or more properties are already incorporated, while 63% more are considering changing their trading status.
Similar numbers also expected the stamp duty increase to impact on their ability to expand their portfolios – 43% of landlords with fewer than 20 properties and 63% of those with more than 20.
Despite uncertainty over tax on profits, landlords told researchers that demand from tenants remained steady.
John Heron, director of mortgages at Paragon, said:
“Recent government interventions into the buy-to-let market are impacting landlord sentiment and plans. The fundamental drivers of the market however – tenant demand and yields – remain strong, so there are competing dynamics at play.
“It is interesting to see that concern about the impact of changes to stamp-duty and tax relief is greatest among landlords with larger portfolios. This concern is likely to grow now that the government have confirmed that these landlords will have to pay the increased rate of stamp-duty on buy-to-let purchases.”