Landlord News

Should Landlords Form Limited Companies to Avoid Tax Changes?

Em Morley - April 15, 2016

Landlords should weigh up the costs of setting up a limited company in order to avoid tax changes, advises the Managing Director of the Association of Residential Letting Agents (ARLA), David Cox.

Speaking at the ARLA conference earlier this week, Cox told landlords to consider whether the costs of incorporating will create savings compared with the reduction in buy-to-let mortgage interest tax relief and higher Stamp Duty rates.

Should Landlords Form Limited Companies to Avoid Tax Changes?

Should Landlords Form Limited Companies to Avoid Tax Changes?

From April 2017, the amount of mortgage interest that can be offset against tax will be cut for landlords, while buy-to-let investors and second home buyers have been subject to a 3% Stamp Duty surcharge from 1st April.

Finance expert Paul Mahoney, of Nova Financial, has advice on how these changes will affect you: /contrary-to-popular-belief-buy-to-let-is-not-dead-insists-finance-firm/

At the conference, Cox claimed: “Landlords will make losses. They have to do the maths to see if incorporating would make them better off.”

Those operating as limited companies will be exempt from the mortgage interest tax relief reduction, however, large-scale investors are still subject to the higher rate of Stamp Duty, as confirmed in the Budget 2016.

Cox believes that there is still a great need for letting agents, as the private rental sector is constantly undergoing changes to regulation and legislation.

The conference focused on whether institutional investment in buy-to-let will threaten smaller landlords.

“There is a big shortage of housing stock,” stated Cox. “Even if institutional landlords build 100,000 a year extra, we would still be 150,000 short.”

He insisted: “There will always be a role for private landlords.”1

Cox expects a flood of rental properties to go onto the market in the second quarter of this year, as landlords rushed to purchase further investments ahead of the Stamp Duty change.

However, he predicts that the market will get quieter in the second half of the year, as landlords struggle to accommodate the financial changes. This forecast arrives as the Royal Institution of Chartered Surveyors says that it expects house prices and sales to fall in the coming months.

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