Buy-to-let owners set up companies and increase rents
12-04-2016
Landlords 'scramble' to avoid tax hit and maintain profits ahead of government crackdown
![](http://cdn2.theweek.co.uk/sites/theweek/files/styles/16x8_544/public/2016/09/160930_housing.jpg?itok=uSWlBuzy)
Buy-to-let owners set up companies and increase rents
Buy-to-let homeowners are "scrambling" to take action to avoid a hit to their incomes from a looming tax crackdown, says The Guardian.
Landlords are moving in ever-larger numbers to set up companies to house their property portfolios, transferring properties into the names of family members. Others are looking to substantially increase the rents they charge.
The moves are designed to offset the hit from a major tax overhaul being phased in from April, which will stop landlords from deducting mortgage interest from their tax bill. Instead, they will assessed for a tax rate based on their gross income, including rent, and then receive a 20 per cent rebate.
This will see more landlords become higher-rate taxpayers - and their tax bills will double. It has been said that investors in low-margin areas could even pay taxes despite making annual losses.
However, anyone holding properties in a limited company structure will be unaffected as mortgage interest will remain tax deductible and the corporate tax rate is a flat 20 per cent, falling to 17 per cent in the next five years.
According to research compiled by Kent Reliance building society, "in the first nine months of this year, 100,000 limited company loans were taken out by landlords buying properties… double the number for all of 2015".
A survey of 900 landlords found 11 per cent, the equivalent of up to 200,000 across the country, have either incorporated in this way or transferred property to a family member in a lower tax bracket, says The Times.
In addition, up to 25 per cent, 500,000 landlords, are looking to incorporate in the future.
"The bad news for tenants is that landlords are also considering raising rents to make up for lost income," says the Guardian, which reports an average 5.4 per cent increase could be on the way. Rents are now at a record average of £881 a month.
However, several experts have cast doubt on the incorporation plans.
"You cannot just transfer a property into a company. You have to sell it to the company and that could trigger other costs," David Hollingworth, of mortgage broker London & Country, said.
He added that landlords would have to think about "how you will get your income out of the company", together with costs and administration complications over keeping and filing company accounts.