“STAMP DUTY HOLIDAY” the press reported following Chancellor of the Exchequer, Rishi Sunak’s announcement in July.
What does this actually mean and who can benefit?
We have already seen a significant increase in mortgage applications and property purchases by homebuyers but what about our clients?
Landlords with rental businesses could take this opportunity to benefit from the tax saving being offered until March 2021.
Many are now considering incorporating into Limited Companies but what are the benefits and pitfalls to doing so?
INCORPORATION
From a tax perspective, consideration needs to be given to capital gains tax and stamp duty land tax. There are reliefs available but it depends on each individual’s circumstance and whether the whole business is being incorporated or just individual properties.
If they are commercial properties, rather than residential properties, the stamp duty land tax rates differ, although the stamp duty holiday remains available through to March 2021.
2020 AUTUMN BUDGET
What will happen in the Autumn Budget? We already know that a capital gains tax review is underway and due to be completed in October. Does this mean that an increase in capital gains tax rates could be introduced from later this year?
WHAT TO DO
If you are interested in looking at incorporating your existing property business, then we can work alongside your solicitor to streamline the process and give bespoke advice on the costs and benefits – which could be up to £15,000 in stamp duty land tax until March 2021.
BENEFITS TO INCORPORATING
The main benefit of incorporating is the ability to claim relief for the full amount of mortgage interest paid, now that the individual restriction has reached 100%.
Limited Companies also have a low rate of corporation tax, currently 19% and more flexibility on the timing of profit extraction.
Dividends of up to £2,000 can be paid tax-free each year, alongside salaries below the National Insurance limit and company pension contributions.
PRACTICAL CONSIDERATIONS
Will the mortgage provider allow the transfer? Do you have an early redemption charge?
What are the ongoing costs of running the Limited Company?
There is no inheritance tax benefit, as the value of the properties remain in client’s Estates but it does allow for the option of different classes of shares for next generation planning.
REMINDERS
Benefits:
- Low rates of capital gains tax
- Stamp Duty holiday until March 2021
- Low corporation tax rates
- Limited liability for owners
Costs:
- Additional costs of running a limited company
- Capital gains tax payable on set up
- Stamp duty land tax payable on set up
- Additional reporting requirement and directors’ responsibilities
- Potential redemption penalties on mortgage
If you require any further assistance or advice about your property portfolio, please contact Lucy Orrow at our Braintree office.
Disclaimer
The views expressed in this article are the personal views of the Author and other professionals may express different views. They may not be the views of Lambert Chapman LLP. The material in the article cannot and should not be considered as exhaustive. Professional advice should be sought in connection with any of the issues contained in the article and the implementation of any actions.