Senior agent urges caution over setting-up buy to let limited companies

One of Britain’s most senior letting agency bosses is warning landlords to take care if considering setting up a limited company in a bid to minimise damage caused by Chancellor George Osborne’s fiscal policies.

Anita Mehra, managing director of Benham & Reeves Residential Lettings, says Osborne’s measures - notably the capping of mortgage relief for landlords at 20 per cent and an additional three per cent stamp duty on buy to let properties - have caused the industry to “reel” in shock. 

As a result, she says many landlords have approached her firm about putting their property portfolio into a limited company. This route is becoming popular because the restriction on tax relief on mortgage interest only affects individual investors and unincorporated residential property businesses and not limited companies.

“Before going down this route, landlords need to think carefully” Mehra says.  

“Transferring an existing property portfolio into a limited company structure could potentially attract Capital Gains Tax based on the market value of the property although such a move may be deferred on incorporation and allowing the landlord to roll the gain into the cost of the shares” she says.

Mehra insists landlords should discuss these issues with their accountants before taking action.

“The transfer can also see the landlord facing a hefty Stamp Duty Land Tax bill as each property is effectively considered to be ‘sold’ at market value to the company even if there may be no consideration” she says.

As an example, she says that if purchasing property through a company for the first time, overseas companies or similar vehicles must pay 15 per cent SDLT if the purchase price exceeds £1m or (from April 2016) £500,000 if the property is not for rental investment. 

Mehra says the case for incorporation may now be stronger and is worth exploring - but she insists “It's not appropriate for all.”