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Investors – is now the perfect time to consider incorporation?

Accountancy firm MJ Bushell says now is the perfect time for landlords and investors to consider property incorporation.

Property tax specialists at the Brentwood-based business believe that thousands of landlords could benefit from the recent stamp duty land tax (SDLT) holiday by incorporating their existing portfolio into a limited company.

The recommendation follows the move by the Chancellor, Rishi Sunak, to announce a temporary increase in the SDLT threshold for all residential purchases from £125,000 to £500,000, until the end of March next year. It is designed to help generate and sustain activity in the property market and aid its recovery from the damage caused by the coronavirus pandemic.

While the move was seen as a major boost to those looking to move up the property ladder – second, third and fourth steppers, for example – Matt Warwick, a tax senior at MJ Bushell, believes that many landlords could benefit as well with careful planning. 

“Although landlords buying additional properties still face a 3% SDLT surcharge on their property purchases, they are not required to pay the standard rate of SDLT on top for homes valued £500,000 or less,” he said.

“This also applies to the transfer of properties into a business, which would normally attract a substantial SDLT bill. In fact, the savings could mean they pay up to half as much.”

Warwick says that incorporating a property portfolio into a limited business carries with it several benefits, not least being able to benefit from mortgage interest tax relief on buy-to-let properties, which unincorporated landlords no longer enjoy.

Since April 2017, mortgage interest tax relief has been phased out over a four-year period. As of April 2020, individual landlords have no longer been able to deduct any of their mortgage expenses from rental income to arrive at their property profits. Instead, all financing costs incurred by a landlord will be given as a basic rate tax reduction.

However, this doesn’t apply to limited companies. As properties held in a limited company are viewed as a business, all expenses can be written off for tax purposes.

“Before the SDLT holiday there had been a lot of debate about whether incorporation is the right approach to take and whether it saves sufficient money to merit the switch,” Warwick added.

“Now, though, it is clear to see that there is a chance for landlords to take advantage of the higher allowance and lower property prices to expand their property empires.”

“Of course, each person’s situation is different, but with a potential saving of £15,000 in stamp duty per property there surely isn’t a better time to re-evaluate your position and consider incorporation. With only six months or less of relief available, investors must act soon.”

Poll: Would you consider incorporating your property portfolio?

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