Landlords have just a few weeks to submit their limited company applications or risk being stung with whopping stamp duty bills in April, say experts.
In November’s Autumn Statement, Chancellor George Osborne revealed stamp duty rates for landlords would be 3 percentage points higher than residential purchases from 1 April. On a property worth £275,000, the stamp duty bill would rocket from £3,750 to £12,000.
The Autumn Statement suggested there could be an exemption for corporates or funds that have existing an residential property portfolio of at least 15 properties at the time of the transaction.
However, since then the Government has asked the industry whether the exemption should apply solely to those wanting to bulk purchase 15 or more properties and whether certain individual investors should also be exempt.
Experts say this uncertainty means landlords should submit any applications to incorporate by the end of the month at the very latest due the small number of lenders offering limited company loans. Research from specialist buy-to-let broker Mortgages for Business says that only a third of lenders currently offer such loans.
Speaking at a Mortgage Strategy round table last month, Mortgages for Business managing director David Whittaker said: “That has always been the history of tax legislation; [tax changes are] always put out there somewhat grey from HMRC to suit their purposes over time. And the problem is, especially about this 1 April deadline, we have got no real opportunity to see how it is panning out. So people have got to make decisions in a rush to get to this incorporation point and have a sensible conversation with their financial adviser about stamp duty and capital gains tax.”
The Buy to Let Business managing director Ying Tan says: “We have a very small timeframe, let’s be under no illusion here. The [stamp duty] changes in April are for completions.
“If we are to speak to our clients and discuss a movement towards limited companies, because it is the best structure for them, then really we have got from now until the end of the month [to get the application in].”
OneSavings Bank sales director Adrian Moloney points out that lenders will also be occupied with implementing their Mortgage Credit Directive changes prior to 1 April, which might swallow up resource.
He added: “On average it takes about 13 weeks to get from application to completion and there are a limited number of lenders operating in limited company buy-to-let. If a landlord hasn’t started the process [of switching to a limited company] and it is their aspiration to do so, they are leaving it very tight.
“You have to remember lenders have got to implement their Mortgage Credit Directive changes and you have Easter at the end of March.”
But Paragon Mortgages managing director John Heron warned brokers and landlords not to rush into any decisions that could end up being detrimental for the customer in the long term.
He said: “Certainly there are material advantages to a landlord that is looking to incorporate if they can do so ahead of [the stamp duty changes], but it doesn’t necessarily invalidate considerations after that. I think we need to be just a little bit careful about rushing the market into responding.
“The point is right: [landlords] need to have started the process already and they need to have taken detailed advice about their general advice and their tax advice – they are going to need legal advice about incorporation. It is no simple process.”
In the summer Budget last year, the Chancellor announced that buy-to-let tax relief would be gradually cut to 20 per cent from 2017.