Our latest webinar – Saving Tax for Landlords: Should you restructure your business to be more tax-efficient in 2021? – has proved to be our most successful ever, with nearly 500 investors attending from around the world. The webinar was aimed at anyone who owns a rental property in their own name looking for ways to restructure their business to make it more tax-efficient.
Leading finance experts explain tax-efficient options for professional landlords and investors
The webinar was led by Benham & Reeves Finance Director Vidhur Mehra, together with leading UK tax experts Christopher Bailey and Malcolm Rose, co-founders and Group Directors of Less Tax 4 Landlords.
An update on the UK’s buoyant housing market
First, Vidhur gave a comprehensive update on the latest developments in the UK property industry. His presentation highlighted new statistics from leading industry sources, from the latest UK house price movements, including the news (from the Halifax Index) that UK house prices in March, a year on from the first lockdown, were up 6.5% – the first house price rise in a recession in modern history.
He also highlighted HM Land Registry figures which show that property values were 10.2% higher in March than a year earlier, the fastest growth in 14 years as well as Zoopla’s recent comments that the UK housing market is on course for its busiest year since the global financial crisis.
Against this backdrop, property investors seeking to expand their London property portfolios are clearly back in force – our own figures show that the number of sales we agreed last month was up 12% on last year while valuation requests were also up 12% on last year. This surge in demand is driving forward property sales in London now that lockdown is easing in the UK.
Should you restructure your business to be more tax efficient?
So, it has never been more important for property investors to structure their buy-to-let property businesses so that they are as tax-efficient as possible. Increasingly, landlords are being urged to run their buy-to-let operations as a professional business so that they can maximise the commercial benefits and compete in a market which demands a professional, business-minded approach.
Section 24 – The restriction of mortgage interest as an allowable expense against profits
One of the greatest recent challenges for landlords is the government’s changes to certain taxes. In particular, Section 24, the restriction of mortgage interest as an allowable expense deductible against profits to the basic rate of tax, has increased many landlords’ tax bills, meaning that this January saw many pay their largest ever payment to HMRC – but not because their profits were larger.
Since April 6th 2020, mortgage interest is fully disallowed and has been replaced with a maximum 20% tax credit, so higher rate taxpayers are now paying more tax on their rental income.
To counter this, Chris and Malcolm went on to explain how landlords could restructure their businesses to stop their tax bills increasing again in 2022.
Typical business structures used by landlords
The most common business structures used by landlords are:
1. Sole Trader/Partnership
2. Limited Company
3. Limited Liability Partnership
What is the Mixed Partnership model?
Chris and Malcolm explained the pros and cons of all these business structures and, in particular, how the Mixed Partnership model, a combination of the above structures, can bring significant advantages to buy-to-let investors – if they meet certain criteria.
They then discussed who the Mixed Partnership model is suitable for and who it is not suitable for.
Briefly, with a Mixed Partnership structure, business owners have the advantages of a Sole Trader/Partnership and the advantages of a Limited Company. The two structures are joined together with a Limited Liability Partnership.
An individual is taxed on profit, notwhat they draw out.
Tax on profits is at a similar rate to a Limited Company ownership. The current corporation tax rate is 19%.
Finance costs are effectively treated as an allowable expense.
Capital Gains Tax is at the corporation taxrate of 19%.
The Mixed Partnership is outside an individual’s estate for Inheritance Tax.
Also examined were subjects such as running a property business as a trading business, how to mitigate mortgage interest, Inheritance Tax reduction, reduction in Capital Gains Tax, securing lower rates of interest, limited liability, succession planning and tax rates.
A packed Q & A session
After the presentation, Chris, Malcolm and Vidhur answered live questions from some of the nearly 500 attendees at the event, all keen to find out more about how restructuring their own businesses could help in their drive to become more tax-efficient.
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