Rental properties

Ian Pessell FCCA profile picture

In this week’s Money Matters - Ask the Experts column from Goldwyns Accountants, based in Southend, Ian Pessell, FCCA, a director and chartered-certified accountant at the company, provides his thoughts on buy-to-let property investments.

Dear Goldwyns - I am looking to invest in a buy-to-let property but as I’m a higher rate tax-payer do recent tax changes mean I should buy this personally or through a company?

Ian Pessell says:

There is no simple rule-of-thumb answer to this question as it depends on numerous factors including personal circumstances, funding options and your longer term intentions.

Personal landlords now only receive higher rate relief on 75% of their buy-to-let interest, reducing each year until from April 2020 no higher rate relief will be given.

There is now also the additional 3% stamp duty if you or your company acquire additional residential properties.

These factors might represent major new costs depending on your intentions and funding arrangements, and may render corporate ownership more attractive.

However, in addition to the incidental costs and administrative hassle of running a company, lenders often charge higher interest rates to corporate landlords, so your decision should not be entirely tax-driven. Also such tax savings will depend heavily on the proportion of gross rents absorbed by the interest costs. Generally, the higher the element of interest, the more it may favour a corporate structure, but some serious number crunching by your professional accountant is needed to establish the exact tax position.

Although companies get full relief on interest costs, the resulting profit is subject to 19% corporation tax, with the net profit then taxed again as income when you take it out of the company. Personal tax may not be an immediate issue if you intend to retain funds in the company to expand your portfolio, but any capital gain on eventually selling a property would be taxed within the company and then subject again to personal tax as you extract the net proceeds as salary or dividends.

You also need to be aware of the corporate “annual tax on enveloped dwellings” which now applies to residential properties valued at over £½m in 2012, or when acquired if later. The good news is that if the property is let by your company on a commercial basis it should be exempt BUT you must still lodge the appropriate claim form on time. Corporate landlords should also note the punitive 15% stamp duty that might apply to future corporate purchases.

The best advice is not to do anything without first focusing on your longer term plans and reviewing all your options with your professional advisors.

This article was first published in the Southend Echo on 22 August 2017.

Thumbnail image

Autumn Statement 2023

A review of measures for UK businesses and individuals.

Thumbnail image

Spring Budget 2024

Details of the Spring Budget 2024. Our summary focuses on the key issues.