There may be some benefits, but there’s more to it than that…
Now we’re into the 2017/2018 tax year and the changes announced in the 2015 Budget are in force, it is not too late to consider incorporation.
From the current tax year onwards, tax relief for mortgage interest and other finance costs are to be progressively disallowed in rental income and expenditure accounts. Whilst there is a corresponding tax credit against the individual’s income tax bill, this is only at 20%, resulting in those paying tax at 40% or more being significantly worse off. However, this restriction only applies to unincorporated residential property businesses.
Higher rates of Stamp Duty Land Tax (SDLT) in the form of a 3% surcharge are now being charged on buy-to-let properties and second homes costing over £40,000 for both individual and corporate purchasers.
Whilst there may be significant income tax benefits to incorporating a business, it should not be considered in isolation. Furthermore, bear in mind that reversing an incorporation is likely to be a messy affair.
There are other tax aspects to incorporating a business, including capital gains tax, capital allowances, inheritance tax and VAT. You should also consider your existing and future funding arrangements, as lenders may seek to vary previously agreed mortgage rates and charge fees to novate existing loans to a limited company.
Whilst it may be your new tax position may be more beneficial, it’s important to remember it must be a multifaceted approach – taking into account your business as a whole.
For more information on whether you should incorporate, please contact our Bolton accountancy advisors by clicking here or call 01204 534031.
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