The latest Liz Truss U-turn will mean landlords are burdened with a large rise in corporation tax from next April.
The announcement means that the tax will rise from its current 19 per cent to 25 per cent in just under six months time - a previous announcement by Truss had cancelled that rise.
This will represent a hefty additional tax on landlords who have already in recent years been hit by the three per cent stamp duty on additional properties, tax relief on mortgage interest payments being slashed to a flat rate of 20 per cent, and the removal of Wear and Tear allowance.
While individual landlords are effectively taxed on turnover, company landlords are taxed on profit. This has meant that for some landlords – particularly those who are higher rate taxpayers – it has become more profitable to move their buy to lets into a company … at least until now.
The higher corporation tax may well stop what had been a growing trend of landlords - especially those with four or more properties - incorporating for tax purposes.
Company structure consultancy GetGround said just last month that it had seen two-and-a-half times the number of incorporations in the year to the end of August than in the previous 12 month period. It had also recorded an average 11 per cent increase in incorporations completed month-on-month since January this year alone.
In the 12 months to August 2022, the number of first-time landlords investing through GetGround limited companies doubled. The company also reported year-on-year growth in customers based both in the UK and internationally.
In total there were 47,400 new BTL companies incorporated in the 2021 calendar year across the UK according to Companies House data, analysed by the Hamptons lettings agency.
This is nearly twice the number that were set up in 2017 when it was announced that investors with properties in their personal names would no longer be able to claim mortgage interest as an expense.
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Not so much a bombshell seeing as we knew it was coming except for the short period after the mini budget.
With dividend tax rates where they are can someone remind me why ltd co is worth the hassle...
It's hard to find any political party that supports business.
Once upon a time there was a thing called middle class.
Once upon a time we had a ' conservative' party
Liz may not be PM by next April, or next month for that matter!
The country is totally skint, they will come for us in every way possible.
Well it’s not the 40/45% we pay is it, (it was 52% in the 70’s I remember that). Anyway will it bring in more tax ? with so many after selling up, a raid on profit with Regulation’s and licensing Schemes never considered a cost by Authorities, of course not to them. Just add a Rent Freeze to curtail profit, yes the extra 3% SD for nothing, O yes the Mortgage’s interest rates rampant more than doubled the cost. He did say on profit he’ll have to start taxing people on a loss.
Just wait for the haircuts ….
CGT increase next?…. To stem the flow of exiting landlords
Yep, I can see that, keep us in the corral, whilst at the same time shearing us 🐑…. Sell quick 🏃
So corporation tax might go up to 25% and higher rate income tax will stay at 45%.
When I went to school, where we had proper teachers who could use corporal punishment, woke hadn't been invented and we all knew which toilets to use, 25% was nearly half of 45%.
Sorry but I don't understand the problem that incorporated Landlords are meant to be facing. Transferring back to Sole Trader status would be much more expensive, paying up to 45% income tax on turnover instead of up to 25% on profit.
Nothing wrong with your maths Robert, but it depends how much you earn, I spent many years paying 40% when I still had the day job, now as a full time landlord in partnership with my wife we both keep our earnings just under the 40% threshold, and with low overheads are better off
25% on profits is still l very different to 40% of turnover
This only fully applies to profits over £250,000 not turnover. like the landlord specific accounting madness.
Profits less than £50,000 still pay the 19% with a marginal rate being charged between £50k and £250k, so to be fair it is still better than being charged under the personal ownership route.
For most small landlords with a couple of properties they will have to earn a sizable amount for this to actually effect than.
Even the 25% tax on profits is better than the 40% or 45% tax paid on turnover by sole trader and partnership Landlords with a significant portfolio.
All that's happening is that the incorporated route is a bit less generous than before, but is still more generous than the income tax charged on equivalent turnover businesses not incorporated.
It's 19% up to £50,000 and above that the effective rate will be 26.5% up until £250,000. This means when you reach £250,000 the full amount will have been taxed at 25% on average. Above that it continues to be taxed at 25%.
Tax Thresholds:
£0 - £50,000 = 19%
£50,001 - £250,000 = 26.5%
£250,000 + = 25%
I pay 40% on my miserable pension just lump everything in together, even OAP don’t escape ever, they need it for to Socially house single parents and their off spring. Dad’s go free can’t expect them to pay. I seem one guy fathered 7 children by 4 different women never reared any. All housed and kept but to all look up to Dad.
Pity these 4 women spent a few minutes on at least 7 occasions looking up at him!
Pity he summed up enough energy on at least 7 occasions!
Just make a loss , not hard nowadays
George, now a lot easier to make a loss than a profit. I didn’t go to School very long but I learned 10% of nothing is nothing.
The only expenses you can't set against income is mortgage interest if you're sole trader. Don't understand the problem. Ltd companies are OK if you're dealing with SA's and the like becuase of limited liability and have large mortage payments
I get these questions everyday. As a chartered accountant I have been preparing 100s of rental accounts for 30 years. The rental accounts never make a lot. All the money was/is made when you sell.
What everyone misses is the tax then. It was 19% corporate tax and then plus 20% CGT ( or plus 33-38% dividend tax if a company with multiple properties). That's almost double the 28% income tax if owned personally.
Now it's 25% and 20%( or 33/38%). So when you look at the whole life of the project its better 9/10 to own personally
Tom Mcmanners ACA
Treetops Chartered Accountants
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