Key tax dates and deadlines for 2018/19
It is an inevitable reality that, for anyone earning a livin...
By Lynne Gowers on 2nd October 2017
In April this year, the government introduced significant changes to the way buy-to-let investments are taxed. Since then, we have had a lot of enquiries from landlords wondering if now may be the right time to incorporate their property business in order to avoid the new restrictions, which only apply to personal income tax.
April’s changes mean that buy-to-let investors are now unable to offset all of their mortgage interest and other costs on loans against their profits – effectively meaning higher tax bills.
Tax relief will now be restricted to basic rate (20%), with the restrictions being phased in over four years.
This useful video, created by the Telegraph, explains the buy-to-let tax relief changes really clearly.
The change only applies to private individual landlords and not to those who own property through companies, prompting many landlords to consider incorporating their property business.
However it isn’t a decision to be taken lightly.
Landlords should carefully weigh up everything involved with running a limited company in the context of their own individual circumstances and long term plans. Here are some of the tax implications to consider:
Landlords also need to consider the tax charges associated with transferring their existing property portfolio into a company:
One option is for landlords to keep their existing properties under personal ownership and set up a company for future buy-to-let purchases.
If you are considering incorporating your property business, it is important to look at the big picture, especially in terms of any future exit plans.
What to think about:
Tax aside, there are other more practical aspects of incorporating your property business. For example, you will need to find out whether your mortgage lender will need to approve any transfer of property ownership into a company and if they will lend to the company at the same interest rate.
Also bear in mind that there is more administration involved with running a limited company, such as deciding how to pay yourself (salary / dividend), preparing and filing accounts, corporation tax returns, confirmation statements and dealing with VAT (if applicable).
That being said, having a decent accounting app and the right advice and support can take away a lot of the pain. Find out how Boox can help
In summary, there is much to think about before you decide to incorporate your buy-to-let business and it very much depends on your personal circumstances and plans.
If you are yet to make up your mind, we have produced a free guide to setting up and running a limited company, which has everything you need to know.
Download it by clicking on the link:
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