Mon 27 Feb 2017
By Graham Norwood
The proportion of landlords considering commercial loans to fund purchases has doubled over the last 18 months as they try to avoid forthcoming changes to landlord taxation.
Research from the National Landlords Association shows that the share of landlords planning to use commercial loans has risen from 10 per cent in July 2015 – when the changes to taxation were first announced – to 19 per cent at the end of last year.
The changes 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.
The increase in commercial loan interest coincides with a 500 per cent increase in the proportion of landlords who have formed a limited company over the last year. This has risen from one per cent in January 2016 – about 20,000 landlords – to six per cent by the end of 2016 – approximately 120,000 landlords.
Landlords who own their properties as a limited company will avoid the changes to taxation and instead pay Corporation Tax – currently 20 per cent – on their profits alone.
“Over the last 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” says Richard Lambert, NLA chief executive.
“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” Lambert continues.
“However, we know 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, and the Chancellor hinted at a review into the matter during his Autumn Statement last year. With this government’s recent track record in mind, we’d advise any landlords who have yet to incorporate to wait to see whether a consultation is launched in the [March 8] Budget before making a decision.”
Source: Letting Agent Today
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