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Over the last few years there have been lots of tax changes affecting buy-to-let ownership including restrictions on mortgage relief and changes to the wear and tear allowance.\u00a0 These have negatively affected many landlords\u2019 incomes, prompting owners of rental properties to consider whether it would be more tax efficient to incorporate \u2013 ie set up a limited company to own their buy-to-let properties.<\/p>\n
Last year 30,000 properties were bought through companies, a 20% increase over the previous year (according to UK Companies House data for all active companies registered in England and Wales as of June 2019).<\/p>\n
There are many benefits for landlords who choose to do this<\/p>\n
Naturally each investor\u2019s circumstances vary, each investor\u2019s portfolio is different and each will have to make their own calculations to determine whether this is the right choice for them.<\/p>\n
Investors must seek professional advice before making a decision but as an initial guide, we\u2019ve put together an outline of some of the key points to consider.<\/p>\n
Investors can offset their FULL mortgage interest against the rental income.\u00a0 This is not possible if a property is owned in an individual\u2019s personal name as it has recently been replaced by a basic rate tax credit.<\/p>\n In many cases, particularly those investors who are in the higher rate tax bracket, buying in a company significantly increases profit margins and income.<\/p>\n Receiving income from property more efficiently<\/strong><\/p>\n Once corporation tax has been paid on the profits, non-UK resident shareholders can take the money out of the company via dividend income, with ZERO income tax payable.<\/p>\n For UK residents, whilst income tax is applied to dividend income, the use of a shareholder loan creates a number of benefits, one of which is the ability to withdraw funds tax free.<\/p>\n Reduced Capital Gains Tax<\/strong><\/p>\n When selling the property, there are two options available.\u00a0 First, shares in the company can be sold.\u00a0 Alternatively, the property can be sold out of the company, in the normal way as you would if it were owned in a personal name.<\/p>\n When selling the company, Capital Gains Tax is reduced to 10% and 20% (subject to the investor\u2019s tax bracket) from 18% or 28%.<\/p>\n Another huge benefit is that by selling shares in the company, the buyer pays ZERO SDLT (Stamp Duty Land Tax), which is a significant saving.\u00a0 This allows for either an increase in the sale price<\/a> or a price advantage in the marketplace.<\/p>\n There are other advantages too.\u00a0<\/strong><\/p>\n Reducing an investor\u2019s personal liability<\/strong><\/p>\n Buying in a company reduces the personal liability of shareholders.\u00a0 The company created has its own legal identity and its assets and liabilities sit with the company rather than the individual. So if anything went wrong there would be no liability back on the shareholders.<\/p>\n Estate and Inheritance Tax planning<\/strong><\/p>\n The limited company structure allows more flexibility to manage taxes.\u00a0 Of course, Inheritance Tax cannot be avoided but in many cases it can be managed efficiently.<\/p>\n Other issues to consider<\/strong><\/p>\n For existing landlords, it may not always make financial sense to transfer an existing property into a company as you would have to \u2018sell\u2019 the property to the new company, incurring Stamp Duty Land Taxes (SDLT) in doing so.\u00a0 \u00a0Although sometimes the future benefits outweigh the short term SDLT costs<\/p>\n Each investor must look at the costs involved as well as evaluating their own financial position as the tax efficiencies will impact clients differently.<\/p>\n We have a novel new offering which allows you to set up a company for \u00a3500 and all the annual running costs are only \u00a3250 per annum. If you would like more information on purchasing buy-to-let properties in a company, please get in touch<\/a>.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":" Over the last few years there have been lots of tax changes affecting buy-to-let ownership including restrictions on mortgage relief and changes to the wear and tear allowance.\u00a0 These have negatively affected many landlords\u2019 incomes, prompting owners of rental properties to consider whether it would be more tax efficient to incorporate \u2013 ie set up … <\/p>\n![\"\"](\"https:\/\/www.benhams.com\/news\/wp-content\/uploads\/2020\/06\/scott-graham-5fNmWej4tAA-unsplash-300x200.jpg\")
Mortgage interest<\/strong><\/p>\n