The removal of the indexation allowance is not expected to have a major impact on an already beleaguered buy-to-let market, brokers have said.
Chancellor Philip Hammond last week announced the freezing of the allowance in the Autumn Budget, meaning companies will no longer be able to offset the effects of inflation when paying tax on their gains.
As a result, tax bills are set to rise on the sale of properties owned by limited companies – an increasingly popular vehicle for people looking to avoid the reduction of tax relief on mortgages.
With the buy-to-let market already struggling under the weight of tighter regulations and a 3 per cent stamp duty surcharge on additional property purchases, it has raised fears of a further blow to the sector.
But David Whittaker, chief executive at buy-to-let broker Mortgages for Business, said: “The removal of indexation is an interesting and relevant change – but the impact for incorporated landlords should be fairly minimal.
“Indexation has never been a significant reason why some landlords chose to own property through a company structure and when you take the reductions to Corporation Tax into account, I'd expect that overall it's a neutral sum gain.
“Rather than complain about it, I think landlords would be better off trying to keep under the chancellor's radar.”
Nick Green, broker at Coventry-based Alternative Estates, also played down the impact of the change.
He said: “When was the last time inflation was 3 per cent? The target is to get it below 2 per cent. Yes, it would have an effect, but only if inflation is at a higher rate.”
Mr Green pointed out that people who use limited companies benefit from a range of tax breaks that would serve to mitigate a rise in tax bills due to the freezing of the allowance, adding “You are not comparing like for like.”
A spokesperson for tax advisers Blick Rothenberg added: “The cost…will be felt only when a property company sells its property. If it does not sell, then losing the indexation allowance becomes irrelevant.
“Property company shareholders will act rationally. In deciding whether or not to sell property they will take into account their post-tax gains. If those net gains reduce over time because tax increases, companies may remain locked into property more than they otherwise would.”
simon.allin@ft.com
