A tax advisor has issued a warning over buy-to-let landlords incorporating their business into a limited company.
Many investors have moved to incorporate, following the additional stamp duty surcharge introduced in April of this year, to avoid paying this tax.
However, Nick Cartwright, a tax partner at Smith & Williamson, believes landlords could be risking a double taxation. He warns that investors could be taxed both in the company and on the extraction of their cash.
Cartwright notes that: ‘incorporation is good if you want to build up money within the company, but not if you want to live off the income as it is earned.’ This is due to landlords being taxed on taking money out of their company and, where it is taken as salary, also on National Insurance contributions. These fee would be payable by both the employer company and the director/employee.
Investors taking out landlord insurance through limited companies should ensure that they get proper tax advice.
Susan Emmett of Savills, warned that there could be consequences of taxation changes in the buy-to-let market. She observed: ‘fewer buy-to-lets means more competition for rental properties, resulting in rising rents making it yet harder for potential first time buyers to save for a deposit.’
Emmett also said there has, ‘definitely been a slow-down in enquiries from investor buyers,’ in areas with lower cost housing.’ However, she warns, ‘this goes against what the Government wants, as landlords will be competing more strongly with the first time buyers in these areas.’
‘The problem is that if you are an investor there aren’t that many options out there and the property market is still the best option,’ she concluded.