Tax

Interesting -

And one of the very reasons I didn't rush to incorporate before Sec 24 has even come into force

The early bird catches the worm. Let's hope the worm wasn't poisoned!

I think we can thank the marketeers for highlighting the "loophole", to HMRC.

Nice one.

This is the difficulty in advising clients at the moment, in that the situation is so fluid at present and it is hard to predict the Government’s next move.  We can only advise on laws as they stand, and warn on any potential dangers we can possibly foresee in the future.

The worry is, that a few times in interviews/speeches, they have used the word “start” i.e as we “start” to make the tax system fairer.  Perhaps this may be reading into things too much, but further change, whether positive or negative, is always a possibility.

It is very much a case of keeping a very close eye on developments, adapting with changes, and making the right decisions for the right reasons.

We are still very much in the early stages of the Section 24 changes, and whilst the 4 year phase in commences in just over a months time, those affected will not see their tax increased bills until they complete their tax returns from 6th April 2018 onwards.

So a case of watch this space, and plan as best as you can in the interim!

Interesting bit of speculation from the NLA.

It is odd that they would give such financial advice - on a single point that people only incorporate to lower there Tax Bill to mitigate the effects of Clause 24 of the Finance Act.

Limited Company Buy to Let Mortgages have been around for a long time before the removal of Mortgage Interest Relief from Buy to Let.
The other benefits (to name a few) - such as giving the ability to retain profits to reduce tax bands or to borrow more given more generous rental stress tests.

The "hold and wait" until the Budget next week is sound though. As Rita4Rent says business taxation is fluid - government interference into markets can happen at any time, to any magnitude. It is good the Chancellor will only be doing a budget once a year, as he said he wants to give certainty to businesses and the economy.

Given that the Landlords have been seen as a soft target - with lack of public support and poor structure  and fractured approach to lobbying - we could be a target again. (obligatory Join a Landlord Association today! message here)

Is this the original NLA article is HERE ? disappointing property industry eye did not link to it. As this article says nothing about incorporating.

There is no tax loophole. Limited companies pay tax on profits AS WELL AS tax payable when income or dividends are withdrawn.

A fairer tax system would be one that was more stable with less government meddling.

Landlords that choose to incorporate already pay a hefty amount of tax by accepting the SDLT and CGT payable on transfer, not to mention the cost of setting up and additional annual running costs (vs. privately owned), as well as higher mortgage costs.

To penalise with additional measures would be difficult to justify and a step too far.

You are of course totally correct.

The loophole is that incorporating allows existing and future LL to escape the clutches of S24 and that simply won't do!

We have history here.

Remember when GB changed tax regs to make it worthwhile for even the milkman to become a small company!?

Well when many took advantage of the new regs Govt realised they were losing a fortune in tax.

So they changed the rules again.

Govt is expecting S24 to generate a CGT windfall, just in time for the GE to produce a lot of resources for a GE bribe.

Which is the reason why CGT was lowered for everyone except LL.

Govt knows that few of the dopey electorate will blame Govt for rents increasing even through it will be S24 that has caused this..

LL will be hated even more, Govt will garner a massive CGT boost from 20 years of rising property prices.

LL will still get the blame for high rents.

S24 therefore must remain effective for the foreseeable future

So I can easily see Govt restricting the corporate escape route

We can only wait and see.

However if it was me I would be selling up and deleveraging massively in an effort to be unencumbered.

Many LL up North can transfer fairly easily to corporate structure with a little financial pain.

Not so Southern LL who are between a rock and a hard place!

It is the Southern LL capital growth over the past 20 years that S24 is attempting to crystallise

I believe there will be more levelling of this seemingly permanently unlevel playing field, in that small corporates will suffer S24 type burdens to make it pointless transferring from sole trader to corporate status.

Govt needs sole traders to remain as such so the S24 can work its true horrible effects.

Hi Adam,

I checked with Property Industry Eye and they directed me to the below:

LANDLORDS LOOK TO COMMERCIAL LOANS TO SIDESTEP BUY-TO-LET TAX CHANGES

The proportion of landlords intending to take out commercial loans to fund their property purchases has doubled over the last 18 months as they look for ways to avoid the impact of forthcoming changes to landlord taxation.

The research* from the National Landlords Association (NLA) shows that the proportion of landlords who said they planned to use commercial loans has risen from 10 per cent in July 2015 – when the changes to taxation were first announced – to 19 per cent at the end of last year.

The changes to taxation will take place from April this year and, once fully phased in by 2021, will prevent landlords with buy-to-let mortgages from deducting their interest payments or any other finance-related costs from their turnover before declaring their taxable income.

The rise in the proportion of landlords looking to take out commercial loans coincides with a 500 per cent increase in the proportion of landlords who have formed a limited company over the last year. This has risen from one per cent in January 2016 – approximately 20,000 landlords – to six per cent by the end of 2016 – approximately 120,000 landlords.

Landlords who own their properties as a limited company will avoid the changes to taxation and instead pay Corporation Tax – currently 20 per cent – on their profits alone.

Richard Lambert, Chief Executive Officer at the NLA said:

“Over the last year more than one hundred thousand landlords have formed a limited company in order to beat the tax changes, and this overlaps with an increasing intention to look to commercial loans to fund future purchases.

“While commercial loans are available to non-incorporated landlords they tend to be a source of funding more commonly used by limited companies looking to expand their property portfoilos, so we’d expect to see this trend develop as the year plays out.

“However, we know that the Treasury is concerned by the drop in tax revenues as a result of businesses across the economy incorporating to reduce their tax bills, and the Chancellor hinted at a review into the matter durig his Autumn Statement last year.

“With this Government’s recent track record in mind, we’d advise any landlords who have yet to incorporate to wait to see whether a consultation is launched in the Budget before making a decision.”

Great, I tweeted them but no response. Odd that they NLA have multiple "news" sections I missed that article..

I listened to the last budget (autumn statement) and I took that to refer to agency workers. Could well include LTD Co's investing in Buy to Let we will have to wait and see.

I agree. There is no "loophole" but the govt does see people like agency workers  incorporating to lessen tax as a loophole.