George Osborne’s Autumn Statement has sent waves throughout the letting industry. Already reeling from the shock announcement that mortgage relief was to be capped at 20%, George Osborne declared that from April 2016, any properties purchased to let would be subject to an extra 3% stamp duty. In the wake of these changes, many landlords have approached Benham & Reeves Residential Lettings about putting their property portfolio into a limited company.
Already many landlords were exploring this option as the restriction on tax relief on mortgage interest only affects individual investors and unincorporated residential property businesses and not limited companies.
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 (CGT) 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. There are many criteria that need to be met to do this so Benham & Reeves Residential Lettings strongly encourages landlords to discuss their situation with their accountant.
The transfer can also see the landlord facing a hefty Stamp Duty Land Tax (SDLT) bill as each property is effectively considered to be “sold” at market value to the company even if there may be no consideration.
If purchasing property through a company for the first time, overseas companies or similar vehicles must pay 15% SDLT if the purchase price exceeds £1,000,000 and from April 2016, £500,000 if the property is not for rental investment.
“Before the changes to mortgage relief, the jury was out on whether or not it was better to incorporate. Under the new rules, the case for incorporation grows stronger,” comments Anita Mehra, MD of Benham & Reeves Residential Lettings. “It’s not appropriate for all of our clients but we’re actively encouraging all investors to at least explore the option to see if it works in their favour financially.”
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