Many buy-to-let landlords have formed companies to own privately rented residential property because this saves them tax, but in the November 2017 Budget, Chancellor Philip Hammond announced that when properties are sold, companies will pay increased capital gains tax.
The main change is to indexation, which currently allows capital gains tax to be lowered depending on how long the property has been owned. From January 2018, this indexation will be kept as it is, resulting in more capital gains tax being charged when a property is sold.
The changes will mainly affect property companies that have owned properties for some time.
Blick Rothenberg accountant Genevieve Moore, speaking to The Telegraph in November 2017, believes that the freezing of the indexation allowance is the first step to abolishing the allowance altogether.
The government has previously announced that individual buy-to-let investors selling property would have to pay capital gains tax no later than 30 days after the property sale. This change has been deferred to 2020. Landlords currently have until the next time they submit their tax return form to pay capital gains tax.
Buy-to-let landlords are losing the tax relief on commercial mortgage interest payments, but this does not affect limited companies, which is why some landlords have formed companies that own their homes. If a landlord wants to profit from the capital growth of a property by selling it, then with the new capital gains rules, the landlord must think carefully about whether there are still financial advantages in forming a property-owning company.