Thousands of homebuyers in the UK have benefited from the temporary increase in the Stamp Duty Land Tax (SDT) threshold announced earlier this year.
Announced back in the Summer Economic Update, the increase to the threshold has effectively eliminated the payment of SDLT on property purchases worth up to £500,000 for first-time buyers and those looking to purchase a new main home.
This is considerably more than the previous threshold of just £125,000 and unsurprisingly it has led to an increase in property purchases. In fact, data from the Government shows that residential property transactions rose 15.6 per cent in August following the introduction of the stamp duty holiday.
Of course, under the rules, those purchasing second homes, while avoiding the main rate of stamp duty, are still liable for the additional three per cent additional home surcharge.
For property investors, this is still a significant saving on any new home that they purchase, with those purchasing a property at the top end of the threshold potentially reducing their tax bill by up to £15,000.
So, what impact does this have on incorporation? Importantly the holiday also applies to properties that are transferred into a limited company.
Properties that are incorporated still benefit from mortgage interest relief, unlike unincorporated portfolios, which can create a substantial tax saving over the life of a buy-to-let mortgage.
What’s more, if you are a higher (40 per cent) or additional (45 per cent) rate taxpayer operating a property portfolio through a limited company means that your profits will be taxed via Corporation Tax at a flat rate of 19 per cent.
Of course, withdrawing funds from the businesses as a salary or dividend will attract tax as well, but with careful planning, it could be significantly less than being taxed directly via property income through Self-Assessment.
Before the current holiday, the stamp duty costs of incorporating a portfolio, especially if it contained numerous properties, often outweighed these potential benefits but this may no longer be the case.
With the stamp duty holiday only remaining in place until 31 March 2021 it is important that property investors and landlords weigh up the potential benefits of incorporation against its reduced costs.