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Landlords warned over limited company rules as HMRC letters go out

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The NRLA has warned landlords who have set up limited companies to run their property portfolios that they will have prove they spend 20 hours a week managing their businesses to get the tax reliefs many hoped they would.

Thousands of landlords have switched their properties from being owned personally to a limited company to benefit from more generous tax reliefs including for mortgage interest payments. Limited companies also pay lower capital gains tax when disposing of property than personal tax payers, although in both cases not in all circumstances.

Chris Norris (main picture) head of policy at the NRLA, says that there is a lot of confusion around exactly how a landlord demonstrates their company qualifies for incorporation relief.

“If you are a landlord and want to qualify for the relief you have to demonstrate that you spend at least 20 hours a week managing the business,” he says.

“There are landlords who may have overestimated the time they spend or are not able to demonstrate that time.”

His comments follow a claim by the Telegraph newspaper that many landlords are being sent letters by HMRC which warn that, on this basis, they may have to pay higher corporation or capital gains tax.

Norris also warns landlords not to make a ‘knee jerk’ decision to move from personal to corporate while other experts say many have been badly advised by ‘cowboy’ consultants who have offered ‘too good to be true’ schemes.

A spokesperson from HMRC says: “This is routine activity – each year we send out thousands of reminder letters on various areas of tax. The vast majority of people pay the correct amount of tax on time.”


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