Second stamp duty hike for landlords: what’s the truth behind the rumours?

How the tax U-turn could impact limited company landlords

While the new stamp duty rates remain untouched in this week’s bombshell tax U-turn, corporation tax is once again set to increase, which could affect property investors with limited companies.

Property investors and buy-to-let landlords – alongside millions of homebuyers – are likely to have felt relief this week that among the major tax overhaul brought about by the new Chancellor, Jeremy Hunt, did not involve reverting the stamp duty changes announced by Kwasi Kwarteng earlier this month.

The increase in the stamp duty thresholds means many property buyers will save money on their tax bills upon purchase, which will be particularly welcome news in the current climate and with higher mortgage rates now needing to be factored in.

However, one big announcement in Hunt’s tax U-turn was the reinstatement of plans to raise corporation tax from 19% to 25% in April 2023. This was first penned by then-Chancellor Rishi Sunak, before being scrapped by Kwasi Kwarteng during his brief spell in the job. Now, the tax increase is once again on the cards.

How could the tax U-turn affect landlords?

For the vast majority of investors and landlords, the latest tax U-turn will have no direct impact on their current or future investments.

However, those who own properties through a limited company – which has become increasingly popular in recent years, particularly since Section 24 reduced the amount of mortgage interest relief individuals could claim on their income tax – could be affected.

While owning a property as an individual means you must pay income tax on your earnings made from the property, if you own it via a limited company, you pay corporation tax instead. For higher-rate tax payers in particular, the existing 19% rate often proves much cheaper than income tax.

The corporation tax U-turn will only apply to companies that make more than £250,000 in profit. These businesses will be liable to pay 25% on their profits from April next year.

Any company that makes £50,000 or less will be protected by a Small Profits Rate, which means corporation tax remains capped at 19%. For those earning between £50,001 and £250,000, there will be a “tapering” rate.

According to the government, this means that 70% of companies (1.4 million businesses) will actually be completely unaffected by this particular tax U-turn, while only 10% of companies will pay the full 25% rate.

Investing through a limited company

Data released last month by GetGround revealed that the number of buy-to-let landlords buying properties through a limited company was up 150% this year, with the firm seeing an average 350 incorporated property transactions per month compared to 140 last year.

As mentioned above, there are a number of benefits to investing in property through a limited company rather than as an individual, which are mainly tax-related. Other advantages include being able to buy with business partners, easier change of ownership in the future, and access to more mortgage options, says GetGround’s chief executive, Moubin Faizullah Khan.

He said: “Just as we’re seeing an uptick in interest from investors looking to purchase energy-efficient, new-build properties, they are also turning to limited company structures to optimise their finances.

“From tax efficiencies to personal liability, there are many good reasons why limited company investing makes good business sense, but ultimately it comes down to efficiency.

“Efficiency is key to investing sustainably, responsibly and profitably. In tougher economic times, the ability for landlords to optimise their buy-to-let portfolios for the long-term is proving crucial.”

While the tax U-turn could have an impact on limited company landlords earning large profits, many will not be affected by the increase. This means purchasing property through a limited company is likely to remain a popular option for many property investors.

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