Will George Osborne remove mortgage interest relief for corporate landlords?
There has been a huge amount of shock and anger in the landlord community at the recent mortgage interest changes, which are due to come into force in April 2017. As you may already be aware from April 2017, for individuals letting residential property, a four year phase-in is due to commence, and once fully phased in, mortgage interest will no longer form part of your rental profits. Instead, once you have calculated the tax due on this profit, a “reducer” will be applied to the tax owed, equating to 20% multiplied by your mortgage interest.
So the first reaction to this by many landlords was, “let’s set up a company then!”
Indeed, on the face of it, this seems an interesting suggestion to some landlords. But of course, there are a huge number of pros and cons in putting your properties in a limited company. Importantly, CGT may arise when transferring it to a company, and what is often forgotten is that although corporation tax can be at a lower rate than, say, the 40% higher rate tax band, that profits still need to be extracted from the company, giving rise to further tax implications.
Then there are the various exemptions and allowances to consider, the upcoming dividend changes to consider, the list goes on.
Could there be more change on the horizon?
Whilst it is just rumours, we are hearing whispers the government is considering the restriction of interest relief for company owned property too. And we are hearing this more and more. The Budget is coming up soon, so could there be further surprises in the pipeline?
The traction began to grow, when the government updated a consultation back in January, albeit, a very short one (!) at just 8 days in duration, and slap bang in the middle of January – the busiest month of the year for personal tax. The consultation can be found by clicking here and with reference to section 6.2 it states: “Question 2: Should an interest restriction only apply to multinational groups or should it also be applied to domestic groups and stand-alone companies?”
Of course, whilst it is just a remote possibility, here at RITA4Rent, we are of the opinion that with this government and their relentless attacks on landlords, anything is possible!
For any of your property tax needs, please do not hesitate to contact RITA4Rent, property tax specialists on freephone 0800 1 22 33 57 or contact us via email by clicking here.