The way property income is taxed is changing. For higher rate tax payers this means that they are likely to be paying significantly more tax on the income from their buy to let properties. This is due to the fact that higher rate tax payers will no longer be able to claim all of the interest paid against tax.
For some investors it actually means that it will no longer be viable to own these properties. However there are some options.
- Accept that more tax will have to be paid
- Sell some or all of the properties to reduce the amount of borrowing
- Move some or all of the properties into a limited company structure
By moving properties into a limited company the full amount of interest will be offset against tax. In addition this structure also means that the investor will have more control over their own remuneration and be able to plan more effectively for tax. The properties will also be protected by limited liability, so this means that if the investor struggles financially then the properties held in the company would be protected. This structure also gives the investor an opportunity to create a directors loan into the company and draw this out of the company tax free.
This all sounds great, however it isn’t as straightforward as it sounds, and it is vital that anyone considering setting up a company takes the appropriate tax and legal advice. Property Investors will have to consider the following.
- Stamp duty incurred when transferring the properties
- Capital Gains Tax which will arise on the transfer of the property
- How personal income from the company is taxed
One of the biggest areas that investors actually worry abut in our experience is how they will finance their properties, as they are no longer able to get standard buy to let mortgages and instead have to seek commercial finance. Whilst this can seem a little daunting actually it isn’t and there are more options available to investors and great rates too. A limited company structure works very well in many circumstances, it is just essential to make sure that proper professional advice is taken.
We thank Solutions Accountancy and Bookkeeping Ltd for their knowledge and expertise on the above. If you would like to discuss further then please contact myself today or alternatively contact Solutions on the below;
http://www.solutionsaccountancy.co.uk/