Buy-to-let incorporation risks double taxation

 In Property

Buy-to-let landlords may be taxed twice if they choose to move their property portfolio into a private limited company.

Since changes to the buy-to-let model were announced by the government, an increasing number of landlords have chosen to transfer their property portfolios into PLCs.

By structuring their assets in this way, landlords had hoped to gain exemption from the new rules. Instead of paying the new rate of tax, landlords believed they would be able to pay corporation tax on profits only (at a rate of 20%, falling to 18% by 2020).

Industry analysts have now identified a potential flaw in this model. Incorporation poses few obvious problems for landlords who want to build up money within the company. However, if a landlord wants to live off income from the property as it is earned, they would be charged for taking money out of the company.

And, if this sum is denoted as a salary, the landlord may also be required to make National Insurance contributions, which they would have to pay as both an employer and employee/director.

According to commentators, this could result in an overall tax rate on distributed rental income of up to 50% with rates set as they are.

With estimates suggesting that as many as 75% of buy-to-let property purchases will be made through limited companies by 2017, landlords who want to live off rental income should check again to make sure they’re making the decision that’s right for their circumstances.

Find out how 3 Wise Bears can help support your buy-to-let enterprise.

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