CTG inflation proofing for companies gone…

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Company Capital Gains Tax:

One of the measures introduced by the November Budget earlier this week will affect those landlords who buy properties through companies.

Since the removal of mortgage interest relief (a tapering reduction over 4 years) there has been a move by a considerable number of landlords to buy, or at least consider buying, their future properties within a limited company.

Although mortgages are more difficult to secure, and a bit more expensive, for a limited company, more providers have started to offer these, and many landlords have taken the plunge. But for obvious reasons this is a trend the government would like to discourage, and one way of doing this, without drastic changes to company tax rules, is this removal of index linking for capital gains.

The scrapping of this benefit (private individuals have long ago lost it) buy-to-let landlords who operate through a company will face higher bills when they come to sell their property assets.

A brief comment in his budget speech signalled the scrapping of corporation tax relief on capital gains due to inflation – not such a big issue if inflation remains low, but even when it does, taken over a long period of say 10 or 20 years, a typical holding period for property, the move is not insignificant.

Companies currently enjoy corporation tax relief on profits made from any capital gain brought about through inflation which means, unlike private individuals, they are only taxed on real gains.

The move will be a significant one for companies and will affect sales of property, machinery and shares. Tax experts say it will discourage the use of companies as investment vehicles, particularly for big buy-to-let landlords.

This move is expected to levy a 1.8bn cost total to UK business over a five year period, and one that cannot easily be avoided.

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