In April 2020 change in legislation meant that landlords could no longer deduct mortgage expenses from their rental income. This meant that they had to pay more tax than in previous years.
This has resulted in many landlords, particularly those with more extensive property portfolios, selling some of their properties to reduce the impact of the tax.
We have been working for several years with landlords, helping them manage their finances more effectively and looking at strategies to mitigate tax. One of the ways that landlords and property investors can make tax savings is to change how they operate. This article explains how moving from having your portfolio in your own name and operating as a limited company can help reduce the tax burden.
If you are investing in buy-to-let properties and have these in your name, there are some benefits, especially as there is less bureaucracy and you do not need to file a return to Companies House or submit annual accounts. However, you may decide that the benefits indicated below outweigh the extra paperwork required.
If you decide to operate as a limited company, this allows you to offset your mortgage interest against the rental income before paying tax. As a limited company, you are taxed on your profit each year.
As a limited company, you must pay corporation tax on your profit. This is currently set out at 19 per cent. If you earn over £50,000, you would typically pay 40 per cent, so you can immediately see the tax saving that you can achieve by paying corporation tax instead.
If you decide to sell your property, you will also pay more capital gains tax, if you have the property in your name, as this is currently 28% for higher rate taxpayers. You would only need to pay 19% corporation tax when you sell a property as a limited company.
However, if you rely on your properties as a source of income and plan to regularly withdraw money as salary, dividends, or directors’ loan; you would be taxed at the usual rate, which may not be as tax-efficient when operating as a limited company. We would need to work with you to evaluate which company structure would work best for you in this situation.
Landlords and property investors planning to grow their property portfolio and invest profits to grow will find that limited company ownership is tax efficient. The limited company structure is an excellent vehicle for long term investment, and funds can be accumulated for retirement or to pass on wealth to family members without incurring high inheritance tax.
If you are a landlord or property investor and would like to discuss strategies for mitigating tax, then please do contact us by calling 01623 490 120 or email This email address is being protected from spambots. You need JavaScript enabled to view it.
Haidee is our Personal Tax Director and is a fully qualified tax adviser, having achieved the ATT qualification in 2006. Tax efficiency being her main concern. Specialising in taxation, Haidee provides clients with advice on personal tax, PAYE services, VAT and social security. She also provides guidance to new start-up businesses.
Call us today on01623 490120
or email info@watsonk.co.uk
When you first start a business, your focus is usually on attracting customers, generating sales and building a successful company. Few business owners spend much time thinking about how or when they will eventually leave the business.
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