Property business incorporation – higher rates of SDLT
Property business incorporation is a tax planning solution suitable for landlords running their property portfolios as businesses.
The recently enacted changes to tax relief for finance costs have made property business incorporations even more compelling particularly for residential landlords as companies are not affected by these changes.
Property business owners are urged to take action prior to 1 April 2016 in order to minimise the impact of proposed SDLT changes. Further changes may be introduced after this date which could impact on the financial benefits of property business incorporation.
Stamp Duty Land Tax (SDLT) can be a prohibitive cost for individual property owners who wish to incorporate their property businesses. However, in many cases the SDLT liability is far outweighed by the future tax savings on rental profits and the uplift of the capital gains tax base cost of the properties.
George Osborne the Chancellor, announced a proposed 3% increase to SDLT rates on purchases of additional residential properties in the 2015 Autumn Statement, such as buy-to-let properties or second homes. These new changes will take effect from 1 April 2016.
An open consultation on SDLT changes was published on 28 December 2015. The key points which relate to property business incorporation are that:
- the higher rates of SDLT are intended to apply to the vast majority of circumstances where individuals or companies purchase additional properties. This can have an impact on people’s ability to get on to the housing ladder
- an exemption from the higher rates of SDLT targeted at some forms of investment in property may be justified
- any exemption will be narrowly targeted to apply only to those purchases of additional properties which significantly contribute to new housing supply and the government’s wider housing objective
- the government’s initial view was that any exemption from the higher raters would only apply to corporates who have and existing residential property portfolio of at least 15 properties at the time of a transaction
- it is now being considered whether the exemption should be targeted at the bulk purchase of at least 15 residential properties in one transaction.
We are operating in uncertain times in terms of the future of SDLT. If you are interested in pursuing property business incorporation you take action immediately in order to complete the transfer prior to 1 April 2016.
Get in touch today to discuss whether this solution would suit your property business.
