Beat the Landlord Tax – set up as a company

The tax paid by landlords is set to increase by as much as 100% in 2017. The changes that were announced by George Osborne in the July 2015 budget have many landlords concerned that their profits will be slashed or wiped out completely, but don’t worry, there are measures you can take to avoid being subject to the new legislation and continue to make an income.

The crux of the matter is that if you, as a landlord, set up as a company, then the new tax rules won’t affect you because you will pay corporation tax and corporation tax has not been increased, in fact it’s set to drop by 1%. So how do you set up as a business?

You start by setting up a special purpose vehicle (SPV), this is basically a subsidiary company and costs between £20 and £75 to implement. Further to this you choose a Standard Industry Classification code (SIC) for property letting. You can do this yourself or it can be done by your accountant for a small fee.

If you already own property that you let out, then you will have to transfer ownership to your new company and that will mean paying capital gains tax and possibly stamp duty. These are however one-off payments and so, in most cases, can be recouped relatively quickly. If you are buying a property to let through your new company, then this is fairly straightforward, much like buying a property as an individual.

If you need a mortgage to buy the property, then you would be wise to seek out a company that specialises in buy-to-let mortgages for companies.

Once you have set up your company and have acquired a property, you proceed as any landlord would, but all the business is done through the company. You’ll need landlords insurance and homelet.co.uk are well experienced at providing bespoke cover for landlords of all types. Good insurance is critical, your lender will probably insist that you have buildings insurance, but have the contents of the property covered and legal cover are both very wise investments.

You’ll also need to ensue you have followed the relevant regulation standards and things like a gas safety check need to be done.

Another factor to bear in mind is accounting. As a company you will have to submit annual returns and accounts. Although you can do this yourself, it can be tricky and you may find that using an accountant will not only save you time, buy possibly money as well. Your accountant will also be of great use to you when it comes to thinking about how you wish to extract money from the company, as there are several ways to this and therefore several ways in which you can be taxed.

This method is best suited to higher and additional taxpayers, but could also work well for those paying basic rates of tax. So it’s time to re- evaluate and move forward without the burden of heavy tax increases.