In Focus: Tax  

Corporation tax hike not ‘massively important’ to BTL investors

Corporation tax hike not ‘massively important’ to BTL investors
 Credit: Chris J Ratcliffe/Bloomberg

The looming corporation tax increase is unlikely to have a significant impact on landlords who own properties through limited companies, according to some buy-to-let commentators.

Elise Coole, managing director at buy-to-let lender Keystone Property Finance, said she did not believe the corporation tax hike would be of “massive importance” as most landlords would be below the threshold for any increase.

She said: “[Given] the rate will taper up to £250,000, and only at that point will corporation tax kick-in at the full 25 per cent, I'd estimate that the top rate is only going to hit one in every 25 buy-to-let investors.”

Last week the Budget set out a corporation tax increase to 25 per cent from April 2023 on annual profits over £250,000 to “balance the need to raise revenue with the objective of having an internationally competitive tax system”.

But HM Treasury added that the rate for small profits under £50,000 would remain at 19 per cent, and that there would be relief for businesses with profits under £250,000 so that they pay less than the main rate.

Mike Hodges, partner at accountancy firm Saffery Champness, said the BTL sector was likely to survive the corporation tax increase.

He said: “Whilst the prospect of increased taxes is never going to be something that any buy-to-let landlord will welcome, an increase to a rate of 25 per cent for those with a portfolio large enough to generate a profit of over £50,000 a year is likely to be something that the sector will be able to live with.”

Hodges added: “It certainly compares favourably with the alternative of keeping properties in personal ownership where the top rates of income tax are 40 per cent and 45 per cent and there is the double whammy of the restriction on the deductibility of mortgage interest to basic rates, which doesn’t apply to companies.

“It feels likely that for as long as interest rates remain low, the attractions of the potential returns from a property portfolio will be strong enough for the buy-to-let sector weather this particular storm.”

The upcoming increase in the rate of corporation tax is the latest potential tax hike BTL investors have faced.

In 2017 changes to tax relief for residential landlords mean the amount of income tax relief they can get on residential property finance costs is restricted to the basic rate of tax at 20 per cent.

In fact this change led to many investors switching their portfolio to a limited company structure as they can offset mortgage interest against profits which are subject to corporation tax instead of income tax rates, which is cheaper.

Some have claimed the limited company structure is now becoming the standard approach for BTL investors.

Jeni Browne, sales director at buy-to-let broker Mortgages for Business, said feedback from BTL investors suggested they were less concerned about the corporation tax changes than they were about the stamp duty holiday extension.