
With mortgage interest tax relief disappearing, landlords who have a few buy-to-let properties could consider transferring them into a limited company. But is it worth doing? Jonathan Amponsah, CEO at The Tax Guys, explains the pros and cons.
Mortgage interest relief for buy-to-let (BTL) landlords is changing, with the new rules being phased in between April 2017 and 2020.
MORE Landlords will no longer be able to deduct all of their finance costs from their property income. From 2020, you will instead receive a basic rate reduction from your income tax liability for your finance costs. So, if you incur £1,000 interest, you will only be able to claim £200 (20% x £1,000) off your tax bill. However, this change doesn‘t apply to limited companies so many BTL landlords are now tempted to transfer their property into a limited company to continue claiming tax relief on all the interest and finance costs. It’s an attractive proposition as a limited company will enjoy the tax relief that individuals are now losing, and any net profit will be taxed at the lower company tax rates of 20%. But… you may find yourself landed with unnecessary tax bills and costs. Pitfalls Here are five common pitfalls to be aware of if you are considering a transfer to a limited company: These two main tax pitfalls could potentially wipe out any short-term tax savings. Benefits But there are some situations where you can reduce or eliminate the pitfalls above and enjoy some of the benefits of holding your properties through a limited company. Important decision Clearly the message here is ‘don’t rush into it’. It’s extremely unwise to move BTL properties into a company without taking professional advice. Whilst there’s no simple answer to the question and it all depends on your circumstances, as a general ‘rule of thumb’ I would say that if it‘s only one or two existing properties in your name, it‘s not a good idea. If you‘ve got six to 10 properties, it might be worth your while to look at how you can enjoy the benefits of a limited company without triggering unnecessary taxes and costs. Source: https://www.whatmortgage.co.uk/news/buy-to-let/transfer-buy-let-properties-limited-company/ Jonathan Amponsah CTA FCCA is an award winning chartered tax adviser and accountant. He is the founder of The Tax Guys. LESSABOUT THE AUTHOR
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