Tax advice for landlords
16th August 2017
With a number of developments and legislative changes taking place, it's important as a landlord that you make sure you are managing your properties in the most tax efficient manner.
There are a number of points to consider when considering a portfolio structure and it's therefore vital to get advice on your individual situation.
The most tax-efficient structure for you will depend on the purpose of your portfolio. You will be asked:
- Whether income or capital appreciation is your priority
- How long you intend to own the property(s)
- Your current tax rate
- If there is potential to use a spouse's unused basic rate tax band
- If there is potential to use a spouse's capital gains tax annual exemption when you sell the property(s)
Potential structures consist of:
- 'joint tenants'
- 'tenants in common'
- in your own name
- limited liability partnership (LLP)
- limited company.
‘Tenants in common’ indicates joint legal ownership. However, the beneficial interest can be split as you see fit, for example 99% to spouse with low tax rate and 1% to other spouse. It is worth noting that in a divorce the ownership is not per the beneficial interest split and will be considered under the laws applicable to a divorce.
A trust structure can also be used to apportion beneficial interest in a way desired. HMRC notification is required for any split other than 50/50.
There has been a lot of media coverage recently about the potential tax savings from transferring property into a limited company.
There is a point when this becomes beneficial, depending on your circumstances. For instance it can be advantageous if you pay significant loan interest and you are also a higher rate tax payer.
This is due to the recent change in mortgage interest rules. As of 6 April 2017, the rate of relief on interest paid is coming down. It will continue to do so for the next four years until it reaches a rate of 20%.
When considering a limited company structure for you, your adviser will look at:
- The likely tax savings available to your limited company due to lower company tax rates and ability to claim full mortgage interest relief
- The amount of any capital gains tax and stamp duty you will pay on transferring property to your company
- The additional legal and accounting costs involved in running your company
- The tax implications if and when you need to get surplus cash out of the company
Whatever structure you set up, remember to get the appropriate life cover to safeguard your assets and cover your liabilities in the way you want.
One final note should you be looking at adding to your portfolio — be aware of the new property portfolio legislation coming into effect on 1 October 2017. From this date, any landlord who owns four or more mortgaged buy-to-let properties will have to submit income and mortgage details on all of them every time they refinance one, or purchase a new property.
You may therefore wish to get the ball rolling on your new property before the legislation comes into effect.
To discuss the above further, please feel free to email or call me on 01249 712074.
Business & Corporate Tax Manager