“Those not jumping at incorporation can often alter the proportionate ownership. A 'tenancy in common' can shift the tax burden from one person to another, the latter typically being the lower rate taxpayer.”
Weighing it up."
Mr Hollingworth says that landlords will be attracted to the idea of using a limited company structure to acquire property, but that independent tax advice will be crucial for them to understand all the possible implications.
“Those that are looking to grow a portfolio and acquire more property in particular are likely to see the benefits of being able to set interest against income within the company and the lower rates of corporation tax,” he adds.
“Those considering moving existing property into a limited company structure will need to factor in that the transaction could incur substantial stamp duty and potential capital gains tax charges, as the transfer essentially sees the property sold to the company.”
But other factors can outweigh this extra cost, according to Mr Robins.
“The main tax factor is the rate at which rental profits are taxed,” he says. “Rental profits of an individual or partnership are taxed at income tax rates of up to 45 per cent, whereas companies pay a flat rate of 19 per cent.
“For landlords who do not need to draw down all of their rental profits each year, the lower corporate tax rates can make a big difference – for example, making it possible to repay debt much more quickly.”
Some of the additional costs might explain why, as Mark Harris, chief executive of mortgage broker SPF Private Clients, says: “There has been an increase in landlords opting for limited company/corporate structures but the growth hasn’t been the massive switchover envisaged by some market commentators a number of years ago.”
Instead, he notes that some landlords may find it makes sense to purchase new property via a corporate structure while maintaining existing properties as they are.
As Mr Hosker says, the government’s intention was for landlords to cease expanding and “perhaps sell a few units”.
So HM Revenue & Customs is on high alert. Mr Robins highlights a couple of pitfalls for landlords to be aware of.
“For landlords currently operating in partnerships, it may be possible to transfer portfolios into a company at little or no stamp duty cost. This has been seen by some as providing an opportunity to game the system, by trading as a partnership for a short period before incorporating,” he explains.
“HMRC are well aware of this, and as a result landlords looking to take advantage of incorporation reliefs need to tread carefully – artificial use of a partnership just to save stamp duty is likely to be challenged strongly by HMRC.”
