Limited company BTL could result in double taxation, warns accountant

Speaking at the ASTL's annual conference, Cartwright warned that there was a potential double layer of tax, as landlords may be taxed both in the company and on the extraction of their money. He said that the “overall tax rate, if rental income is distributed, could be as much as 50% with current rates”.

He added that “incorporation is good if you want to build up money within the company, but not if you want to live off the income as it is earned” as the landlord would be taxed on taking money out of the company and, where taken as a salary, could also be liable for National Insurance contributions, which would be payable both by the employer company and the director/employee.

In addition, he pointed out that regulation is about to change once again following the PRA’s consultation on ‘underwriting standards for buy-to-let mortgage contracts’ which, if adopted, will require affordability tests, regardless of whether the borrower is an individual or limited company. This currently is only applicable to firms subject to PRA regulations, such as banks.

Susan Emmett of Savills also warned of the consequences of taxation changes in the buy-to-let market saying that the government should be “careful of what they wish for”.  

She said that “fewer buy-to-lets means more competition for rental properties, resulting in rising rents making it yet harder for potential first time buyers to save for a deposit.”  

Emmett believes there has “definitely been a slow-down in enquiries from investor buyers” but that some of these may now be looking in areas of lower cost housing, however she warned “this goes against what the government wants, as landlords will be competing more strongly with the first time buyers in these areas.”

Susan concluded: “The problem is that if you are an investor there aren’t that many options out there and the property market is still the best option.”