Incorporation of buy-to-let businesses

Many individuals with a property portfolio are now looking to incorporate as a company or LLP in order to be tax efficient. This is due to changes being implemented from April 2017 that will see landlords pay tax at a rate of up to 45% on the entire rental income they generate from their properties.

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Incorporation is an attractive alternative as landlords incorporated as an LLP or limited company will continue to pay corporation tax which the government is aiming to reduce the main rate to 17% by 2020. However, it will then be necessary to consider how the profits from the business will be used as dividend tax rates will also increase across all tax bands from next month and in line with the 2017 budget there is to be a reduction in the tax-free dividend allowance from £5,000 to £2,000. Therefore if the intention of using an incorporated entity is for long term growth of the property portfolio, incorporation may be the suitable solution to avoid paying high levels of tax.

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It is also important to note that the extra 3% stamp duty payable on second properties will apply to both individuals and companies.

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EHL Commercial can assist you with the incorporation process and ensuring that your new company is compliant with legislation, however, incorporation is not necessarily the solution for everyone so specialist tax advice should always be sought prior to taking any steps to incorporate.