The National Landlords Association (NLA) is urging members to hold off from incorporating in case the Government tries to clamp down on limited companies being formed to mitigate income mortgage interest relief changes.
Richard Lambert, chief executive of the NLA, said the Chancellor hinted in his Autumn Statement 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.
He warned that landlords, many of whom are incorporating to preserve mortgage interest relief, should wait to see whether a consultation is launched in next week’s Budget before making a decision.
It comes as the proportion of landlords intending to take out commercial loans to fund their property purchases has doubled over the past 18 months as they look to mitigate the impending buy-to-let tax changes.
Research by the NLA shows that the proportion of landlords planning to use commercial loans has risen from 10% in July 2015 – when the changes to taxation were first announced – to 19% at the end of last year.
The changes to taxation will take place from April 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.
This rise coincides with increasing numbers of landlords telling the NLA’s quarterly landlord panel that they would form a limited company to preserve the mortgage interest relief perks. One per cent of landlords said they would incorporate in January 2016 and the figures now stands at 6%, which the NLA says equates to a rise from 20,000 to 120,000.
Lambert said: “Over the past 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 portfolios, so we’d expect to see this trend develop as the year plays out.”
It would seem that Mr Shoffman does not know the difference between a ‘perk’ (meaning Advantage) and a GAAP (Generally Accepted Accounting Principle). Offsetting of a business cost is a standard practice in every business in the land, and certainly across most of the world. Bad reporting.
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So, we have a CONSERVATIVE government in power?
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I said at the time, some loopholes to get around tax might be artificially created to shunt BTL landlords to another instance.
Many then followed like sheep, simply to be in a different place where tax was likely to be around the corner.
The government want stock back in the market. It looks like there has been a 10 year plan ongoing
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I disagree in regard to Government wanting stock back in the market Trevor. Mostly this is about tax take and my own Conservative MP confirmed that with me. Sure, helping FTBs is a useful smoke screen. Osborne was quite canny about that but if he’d been serious about it then he would have not done what he did with CGT. The NLA approached the Treasury to ask for some sort of CGT holiday if a LL sells to a FTB but were flatly refused. Then when Osborne reduced it for everyone else he kept it in place for BTL. He knew that if S24 pushed/forced LLs to sell up then whilst he wouldn’t grab tax through the limiting of MIR he would do so through CGT.
Of course it’s a short term strategy because long term he’d lose the tax on income if LLs quit. However Osbo was all about short term as he wanted to nail the deficit. Selling off money-making taxpayer-ownded assets such as Land Registry, Air Traffic, Ordnance Survey, etc, etc, etc AND the so-called pension reforms were all intended so that Georgie Boy could boast that he was the one that took the books back into the black.
Philip Hammond has actually said that no landlord will see a tax increase of more than 5%, which goes to show how little he understands S24. That or he the truth and he are strangers.
Government is desperate for tax take and will likely find evermore stealth taxes to impose upon us.
However this particular tax will backfire on them, of that I have absolutely no doubt. The signs are already showing with increased rents and homelessness. That’s funny! Isn’t that just what happened in Ireland when milder forms of it were tried there???
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