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We Talk Property Rental Business- BTL (Buy To Let)

Should Your Property Rental Business Be A Limited Company

Should you move your propety rental business to a limited company?

Here’s the question: Should you move your property rental business into being a limited company?
 
Under the new tax regime, the tax relief on mortgage interest has been restricted to 20%, meaning landlords with high gearing (a high proportion of debt to equity) would face a higher tax bill than before. The restriction will be phased in over a few years and by 2020, the full interest will be restricted. Here’s an example of how it will change your tax bill:
 
  Before After
Rental profit exc. Interest £40,000 £40,000
Interest £20,000 N/A
Taxable profit £20,000 £40,000
Tax at 40% £8,000 £16,000
Tax relief at 20% on interest N/A £4,000
Net tax liability £8,000 £12,000
Increase in tax N/A £4,000

As you can see, there will be an increase in tax the equivalent of 20% in interest. What this means is that if you’re not a higher rate tax payer, you’re not affected by the changes. Therefore, in this case, you aren’t required to move your properties into a limited company; assuming the sole objective is to eliminate the impact of the change in tax rules.
 
If, however, you’re a higher rate tax payer, the change will have an impact on your tax bill, and you should consider the following before changing the structure.
 
  • What effect does the change have on you?
  • How much will moving it to a company save you?
  • What is the cost of implementation?
  • Is the saving worth considering the change?
  • What risks will the new structure carry?
  • Will the new structure work in line with your goal?
  • Have you considered any other taxation and its impact- eg Capital gains, stamp duty, Inheritance tax?
 
Although the question remains, should you Incorporate, now that you have some important points to consider when deciding.
 
We’re here to assist you in making this important decision. and offer a three-step process:
 
  1. Initial Screening and Fact Finding
  2. Goal Assessment & Calculations
  3. Summarise results and provide you with report showing:
    1. If you didn’t move the rental business to company
    2. If you moved the rental business to company
    3. If you should adopt a hybrid solution.
 
If you would like to discuss your options, get in touch with us now: