Putting buy-to-let properties into a limited company to avoid paying higher rates of income tax could result in double taxation, a leading accountant has warned.
Speaking at the ASTL annual conference in London, Nick Cartwright, a tax partner at Smith & Williamson, said there was a potential double layer of tax as landlords may be taxed both in the company and on the extraction of their money.
He said: “The overall tax rate, if rental income is distributed, could be as much as 50% with current rates.
“Incorporation is good if you want to build up money within the company, but not if you want to live off the income as it is earned” as the landlord would be taxed on taking money out of the company and, where taken as a salary, could also be liable for National Insurance contributions, which would be payable both by the employer company and the director/employee.”
Susan Emmett of Savills also warned of the consequences of taxation changes in the buy-to-let market, saying that the government should be “careful of what they wish for”.
“Fewer buy-to-lets means more competition for rental properties, resulting in rising rents making it yet harder for potential first-time buyers to save for a deposit,” Emmett said.
She believes there has been a slow-down in enquiries from investor buyers who may now be looking in areas of low cost housing.
“This goes against what the government wants, as landlords will be competing more strongly with the first-time buyers in these areas.
“The problem is that if you are an investor there aren’t that many options out there and the property market is still the best option.”
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