Rachel asks: “I know that new stamp duty of +3% comes is in effect in April 2016. I’m looking at buying a ~£110k flat to let out next year. If I bought it as a company could I avoid the stamp duty? What other concerns or benefits does this bring?”

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Q&A 66 – Stamp Duty For Limited Companies – Shownotes

Rachel asks:

I know that new stamp duty of +3% comes is in effect in April 2016.

I’m looking at buying a ~£110k flat to let out next year.

If I bought it as a company could I avoid the stamp duty?

What other concerns or benefits does this bring??

Hi Rachel and thank you for your question.

That autumn statement wasn’t half annoying for property investors wasn’t it?

 

The New Stamp Duty Rules

For anyone who is not aware, the “new stamp duty” which is due to come into effect in April 2016 states that anyone buying a property which is not their primary residence (their own home), will have to pay an additional 3% stamp duty.

If Rachel is looking to buy a flat for £110k, then the stamp duty would have previously been zero, but the new 3% charge means that she’ll now have to pay £3,300 in stamp duty.

 

Can You Avoid It By Using A Company?

Unfortunately Rachel, you actually can’t get around this by just setting up a limited company and buying through that vehicle. The new regulation states that there may be some relief for corporates or large investors, but this is likely to only be relevant to individuals or companies which own over 15 properties. This is still being debated by government, but it’s very unlikely at this stage that there will be an exemption for a company that has been established and only own a small handful of properties..

 

 

Other Reasons To Set Up A Company For Property

However, there are other reasons that you might want to set up a company to manage your property investments. I won’t go into any great detail in this podcast, but you will need to consider changes from the last budget related to higher limit tax relief on mortgage interest (or lack of it), how to distribute any profits from the company back to yourself (this could be through dividends or salary from the company, but then you have the complexity of PAYE). You’ll also need to consider the difference between capital gains and corporation tax for individuals and companies (and whether you could elect the property as your primary residence if you are living there to benefit from capital gains tax reliefs in the future.

You’ll also need to consider the difficulties of setting up a company. Your funding options will be diminished with fewer buy-to-let mortgages currently on offer for companies (although that market is changing quite quickly at the moment), company administration, tax returns, etc etc.

Another alternative, if it works with your investment timeline, is to buy the property before April 2016. This would mean that you wouldn’t be liable to paying the stamp duty on this property.

For more information on this (and whether you want to set up as a company) I’ve added two links to podcasts by Rob and Rob from The Property Hub which cover managing your properties in a company and the new stamp duty changes.

 

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