Hammond’s pop at Ltd Co tax wrappers may spell more upset for BTL

Buy-to-let investors are not in the government’s best books, that much has been certain. In an effort to free up the housing market for home buyers, the market was slapped with a 3% Stamp Duty surcharge last year, followed by a toughening up of lenders’ underwriting criteria phased in from this year.

Yet to be introduced is the measure that will probably affect landlords the most: the phasing out of tax relief on mortgage interest payments over the coming four years. A landlord now claiming 40% in tax relief will only be entitled to the basic rate of 20% by 2021. Research has suggested a higher-rate taxpayer would see their returns obliterated once their mortgage interest hits 75% or more of their rental income.

So far there has been a way around this: by restructuring as a limited company, landlords pay corporation tax instead of income tax, currently set at 20% and to reduce to 17% in 2020. They will also still be able to deduct finance costs from their turnover when calculating profit, whereas individual landlords will not.

However, judging by today’s Budget speech, the Chancellor is not particularly fond of this approach – at least not in principle.

“As our economy responds to the challenges of globalisation, shifts in demographics, and the emergence of new technologies we have seen a dramatic increase in the number of people working as self-employed or through their own companies,” he said at the despatch box.

“Indeed, many of our most highly-paid professionals work through Limited Liability Partnerships and are treated as self-employed. There are many good reasons for choosing to be self-employed or working through a company. …but those choices should not be driven primarily by differences in tax treatment,” he said.

To mitigate disparities in contributions to the coffers, Hammond plans to increase national insurance contributions for the self-employed. But is he poised to go further?

According to Hammond, the Prime Minister has asked RSA chief executive Matthew Taylor to examine the wider implications of different employment practices. His final report is due out in the summer but his initial findings were decisive. “He is clear that differences in tax treatment are a key driver behind the trends we are observing,” said Hammond.

Although it is unclear what exactly Hammond could do to make life harder for buy-to-let investors setting up as limited companies, it is not entirely unreasonable to believe the Chancellor is aware of this option and perhaps not particularly fond of it either.