More private landlords decide to incorporate as punitive tax changes get nearer
The Treasury is facing calls to ensure landlords do not dodge taxes.
There is evidence that more landlords are seeking to change their operations into companies ahead of the changes to mortgage interest relief.
Incorporating allows landlords to borrow through a company structure and still be able to offset finance costs against rental income.
Lord Beecham, shadow housing spokesman, said limited companies should not be more advantaged than other landlords.
He has tabled a Parliamentary question to the Treasury: “To ask Her Majesty’s Government whether they intend to take steps to ensure that limited companies are not better placed than other landlords in relation to the taxation of profits engendered by letting residential properties.”
The Treasury is yet to respond.
However, there is strong evidence that private landlords are increasingly incorporating or taking other steps in order to mitigate tax changes.
A new report from lender Kent Reliance, ‘Buy to Let Britain’, says that research of 900 landlords has shown that 11% have already incorporated or have moved holdings to a spouse or partner paying lower-rate tax.
Kent Reliance’s analysis shows that there have already been more than 100,000 limited company loans issued in the first nine months of the year, double the total amount in the whole of 2015. There were over 12,000 a month in the last quarter.
Rent rises are likely to accelerate in 2017, says the study.
A third of landlords expect to increase rents in the next six months alone, by an average of 5.4% – equivalent to £571 per year for households.
Two thirds cite higher future taxes, and 43% the strength of tenant demand. Indeed, twice as many landlords are seeing an increase in tenant demand as the number seeing a decline.
The survey was conducted before the ban on letting fees was announced. However, says the study, landlords will factor any extra costs into rents.
Extra pressure will also come from the Prudential Regulation Authority’s new underwriting standards, due for implementation next year.
These will see landlords needing to demonstrate higher yields to secure finance, unless they can provide larger deposits. As a result, Kent Reliance forecasts that rents will rise by an average of 3% in 2017.
Andy Golding, chief executive of OneSavings Bank, which trades under the Kent Reliance and InterBay brands in buy-to-let, said: “Property investors have had to roll with punches in 2016. The Stamp Duty levy clearly took its toll on the market, and combined with the forthcoming tax changes, landlords have felt at the mercy of a political agenda.
“But confidence is returning as landlords take action to limit the damage to their finances.”