Many Investors still do not understand how recent property tax changes will affect them whilst others are considering options that actually may cost them more in the long term. If you are one of these, take advantage of our free property tax review!
Due to the amount of our investors that call us regards tax efficient structures we thought it best to liaise with a specialist. David is a tax director at our company accountants and is a specialist in property taxation.
Click here for Carpenter Box’s latest Property Tax Implications Newsletter.
Buy-to-let (BTL) landlords have been in the firing line of the Chancellor of late: 3% extra SDLT from April 2016 and restrictions to tax relief for loan interest from April 2017.
This poses a number of questions for the BTL investor including what can be done to reduce the impact of these costs.
In cases with higher LTV, your income tax can sometimes exceed the profit and this can be very disconcerting.
It may seem an obvious solution to invest via a company as these changes do not apply to companies (yet) and the rate of tax paid by a company is only 20%.
However, whether or not this is the right decision can be very complex and you would do well to consider the following matters carefully before proceeding.
1. What is the interest rate on borrowing through a company?
In many cases the costs are higher compared to personal BTL and this can more than outweigh the tax benefits.
2. Do you use the income generated for reinvestment or do you use it to supplement your income?
If you need to take the income, then in the case of a company you will need to take a dividend or a salary. This may suffer income tax and this could reduce (and sometimes negate) the tax savings from using a company.
3. Do I use the company for the existing properties as well as new ones?
The transfer of property to a company can give rise of SDLT and capital gains tax and this is can be a very expensive upfront cost. What is this cost versus the potential future saving?
4. What are your future plans?
If you sell the properties there can be a double tax cost when using a company. Firstly there may be tax for the company on its gain when it sells the property. Secondly, there may be tax for the shareholder when the company distributes its funds to them.
I used Fresh Invest’s services to purchase my first student accommodation in Liverpool. Their ability to identify an opportunity and help me complete the purchase efficiently with full transparency is something I highly valued. Their staff provided excellent guidance to enable me to exchange contracts on very favourable terms for me. I would highly recommend them to anyone looking for more than just a real estate agent! MR ARIKAT - SENIOR VP OR WEALTH MANAGEMENT COMPANY