Incorporation and tax structuring for Landlords

14 July 2020

With many business owners owning more than one property or having a property portfolio, the challenge to be tax efficient has become increasingly common.

The challenge

Over many years there has been a focus on increasing tax rates for landlords with the buy-to-let market and successive governments targeting this sector, introducing new tax rules putting pressure on landlords and the market. Many landlords struggle to break even and the buy-to-let market has become filled with complex and punitive tax rules.

A recent example is the final step of the phasing in, regarding the restriction on mortgage interest deductions. This came into effect from the 6th April 2020 – residential property landlords don’t get to deduct their mortgage interest costs in calculating their taxable profits – a basic rate tax reducer of 20% of the interest cost has replaced this, meaning many landlords are paying substantially more income tax on an annual basis.

What can I do?

There are various ways you could maximise profit from additional residential property – one of which is by holding your residential property within a corporate structure.

However, it’s not a great idea to rush off and put all your property into a corporate structure – doing so could trigger substantial tax charges. Unfortunately there’s no one-size-fits-all solution when deciding whether it’s better to hold property personally or through a limited company. As with all tax rules, it’s complex and needs to be looked at carefully to understand whether it will benefit you.

If your goal is to maximise the commercial benefits of building, running, and growing a property business and to pass it on as intact as possible to the next generation, then putting property into a company could work for you.

so, What are the benefits?

For many, transferring property into a company could mean faster repayment of debt, higher yields and more money for future investment. Beyond that, a company can present more flexible succession and Inheritance Tax planning options.

For example, we were able to help a married couple in partnership transfer their portfolio of 18 properties to a limited company. With the appropriate advice, we were able to save them SDLT and Capital Gains Tax of over £400,000 on these transfers, with an anticipated income tax saving of over £10,000 per annum going forwards.

How can we help?

Our experienced tax team can provide you with detailed structuring advice by reviewing your income requirements, long term strategy and how the changing rules affect you. We’ll make sure you’re using the right structure to maximise tax efficiency and save money.

So, why not contact us today to find out if putting your property into a company structure could be right for you?