Landlords beating tax rises

The number of buy-to-let landlords that have begun purchasing new properties in a limited company arrangement has increased significantly in the last 12 months.

According to research over 75% of purchases are now in a limited company structure in response to the tax changes which are due to take effect.

From April this year, the tax relief landlords are able to receive on residential property finance costs will be restricted to the basic rate of income tax.

Before, a landlord would buy in their personal name and have the mortgage in their personal name and certainly the higher rate taxpayers, they were able to offset the mortgage interest against their income tax liability. For higher rate taxpayers that’s being phased out now over the next four years.

By putting it in a company structure, the companies haven’t seen the reduction in mortgage relief so the changes don’t apply to limited companies.

Lower rates on corporation tax and the ability to set mortgage interest against income as an expense will appeal to those higher and additional rate taxpayers eyeing a growing tax bill.

It’s not for everyone in terms of you’ve got to look into it in more depth when considering moving existing portfolios into a limited company. However, it seems the advice for purchasing new property under a limited company arrangement is more tax efficient because you’re not crystallising the capital gains liability and you haven’t then got to pay stamp duty again – they’re the main reasons.

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