Pretty much all of the main political parties have been vocal about extra rights for renters in their manifestos. Section 21 (the 'no fault' eviction) looks to be going whoever wins the election, as does the AST which underpinned the growth of the private rented sector. But what might Labour and the Conservatives have in store specifically for the limited company landlord?
While landlords with homes in their own name have increasingly found themselves looking over their shoulder at sucessive chancellors who have progressively been chasing after them for more tax, landlords holding homes in a company structure have generally been able to rest a little easier. But might an election change this?
A tax divide has opened up since 2016 between landlords who hold homes in their own name and those who hold homes in limited companies. And the good news for limited company landlords going into the election, is that both the Labour and Conservative Party manifestos are strikingly similar when it comes to Corporation Tax.
Both the two main parties have promised no increases in Corporation Tax and to retain the current full expensing system. Labour has also promised to review existing rates to ensure they remain ‘competitive’ should other G7 country cut theirs. Although of course these commitments follow headline Corporation Tax rates being hiked from 19% to 25% in 2021 for profits over £50,000.
The vast majority of limited company landlords still only pay the lower rate given that 51% of companies only hold a single property. But larger buy-to-let businesses, and those based in London and the South East have undoubtedly faced higher tax bills already.
The introduction in the March 2021 budget of a £50,000 threshold above which higher rates are payable also opens the door to taxation inflation. The experience of personal tax allowances suggests the government won’t be quick to uprate the £50,000 figure, meaning more businesses end up paying more tax. In fact just to keep pace with inflation, the £50,000 threshold should already be £60,000.
While the Labour Party has promised not to increase taxes on ‘working people’ and cap the headline business tax rates, it still leaves the door open to changes to the rules, if not headline rates themselves. So there is always a possibility that incorporated landlords could eventually find themselves playing by a different set of rules to other businesses.
But the Labour Party points out that Corporation Tax has been changed 26 times under the Conservative government, often at short notice. As such, their manifesto commits them to just one fiscal event per year (i.e. a Budget) and a long-term roadmap for business rates. This should make it easier for landlords considering incorporation to weigh up the pros and cons.
In recent times this is a route that landlords have gone down in increasing numbers as the chart above shows. So far the move towards a company structure has continued into 2024, with the first five months of the year recording record numbers. So far the pace of increase surpassed 2021 and 2022 levels when the number of homes being purchased by investors was much higher, meaning there might be 60,000 incorporations this year. This suggests that well over half of incorporations are driven by existing landlords moving homes from personal names into a limited company structure.
While landlords have increasingly sought solace from government tinkering in a company structure, it’s been tax which has been the primary driver. But as we approach an election, and what looks like a likely change of government, landlords have also found a degree of political safety in a limited company. Fundamentally it’s much harder to change the rules for landlords if you’re changing the rules for every other company too. But it’s certainly not impossible.
