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Higher Corporation Tax Unlikely To Impact Limited Landlords

Limited company landlords are unlikely to change their ownership arrangements despite the chancellor’s move to raise corporation tax.

The tax change from 19 to 25 per cent, announced in the Budget and due to take effect in 2023, will hit rental profits made by limited company landlords with larger portfolios of properties or those generating particularly big profits. Businesses with annual profits of less than £50,000 will see the tax rate held at 19 per cent, with the rate rising until it reaches 25 per cent for those with profits of more than £250,000. 

A typical company landlord would have to own about 10 buy-to-let properties worth £190,000 each, with mortgages at 75 per cent loan-to-value, to earn a profit above £50,000. The average company landlord owns around three properties, she said. In recent years, property investors have increasingly bought rental homes within a corporate structure, rather than hold their assets as individual buy-to-let landlords. A key attraction has been the ability of limited company owners to take advantage of tax relief on mortgage interest payments, which was gradually withdrawn for personal owners over the four years to 2020. Calculating the effect of the future corporation tax rise on an incorporated, mortgaged landlord with 10 properties of average value producing average rents, Beveridge found each percentage point rise in corporation tax reduced rental profits by £510. Such a landlord would face a rise in tax due from £9,684 to £12,743 under a move from 19 to 25 per cent corporation tax, she said.  Incorporation remained advantageous, particularly for higher rate taxpayers, she said. Even at corporation tax of 25 per cent, you would probably still be paying less tax than you would if you held it in your personal name as a higher-rate taxpayer.