{"id":430,"date":"2017-08-14T09:00:26","date_gmt":"2017-08-14T08:00:26","guid":{"rendered":"http:\/\/glastonburypropertynews.co.uk\/?p=430"},"modified":"2017-08-13T13:11:39","modified_gmt":"2017-08-13T12:11:39","slug":"possible-tax-loophole-for-landlords-of-the-800-rental-properties-in-glastonbury","status":"publish","type":"post","link":"https:\/\/glastonburypropertynews.co.uk\/?p=430","title":{"rendered":"Possible tax loophole for landlords of the 800 rental properties in Glastonbury"},"content":{"rendered":"<p>It seems a long time ago but back in November 2015 George Osborne disclosed plans to restrain the buy-to-let (BTL) market, implying its growing attractiveness was leaving first time buyers competing with landlords for the limited number of properties on the market. One of the things George Osborne did was cap tax relief on BTL mortgages starting in April 2017. Before April 2017, a private landlord could claim tax relief from the interest on their BTL mortgage at the rate they paid income tax \u2013 (i.e. 20% basic rate \/ 40% higher rate \/ 45% additional rate).<\/p>\n<p>So, for example, let\u2019s say we have a Glastonbury landlord who is a high rate tax payer who has a BTL property where the rent is \u00a3900 a month and the mortgage is \u00a3600 per month. In the last tax year assuming no other costs or allowable items \u2026<\/p>\n<ul>\n<li>Annual rental income \u00a310,800<\/li>\n<li>Annual mortgage interest \u00a37,200<\/li>\n<li>Taxable rental income \u00a33,600 after tax relief on mortgage interest<\/li>\n<li>\u00a31,440 income tax<\/li>\n<\/ul>\n<p>And assuming no other changes \u2026 the landlord would have income tax liability in the following tax years of \u2026<\/p>\n<ul>\n<li>\u00a31,800 (2017-2018)<\/li>\n<li>\u00a32,160 (2018-2019)<\/li>\n<li>\u00a32,520 (2019-2020)<\/li>\n<li>\u00a32,880 (2020-2021)<\/li>\n<\/ul>\n<p>Landlords are going to have be a lot smarter with their BTL investments and ensure they are maximising their rental properties full rental capability. However, there is another option for landlords.<\/p>\n<p>The Glastonbury landlords who own the 800 properties in the town could set up a limited company and sell their property to that limited company<\/p>\n<p>In the UK, there are 93,262 BTL Limited Companies, and since the announcement in November 2015 \u2013 the number of BTL companies that have been set up has risen sharply:<\/p>\n<ul>\n<li>Q2 2015 \/ Q3 2015 \u2013 4,193<\/li>\n<li>Q4 2015 \/ Q1 2016 \u2013 5,403<\/li>\n<li>Q2 2016 \/ Q3 2016 \u2013 3,007<\/li>\n<li>Q4 2016 \/ Q1 2017 \u2013 7,149<\/li>\n<\/ul>\n<p>So, by selling their BTL investments to their own limited company, owned 100% by them, these landlords could then offset the costs of running their BTL\u2019s as an \u2018allowable expense\u2019 \u2013 effectively writing off the cost of 100% of their mortgage outgoings, wear and tear and upkeep, letting agent\u2019s fees etc.<\/p>\n<p>This is an idea that has piqued the interest of many Glastonbury landlords.<\/p>\n<p>Should you make the change to a limited company?<\/p>\n<p>Here are five common pitfalls to be aware of if you are considering a transfer to a limited company:<\/p>\n<ul>\n<li>Stamp Duty Land Tax. If you transfer the property from yourself to the company (effectively the company buys the property) then the company could become liable to pay stamp duty land tax.<\/li>\n<li>Capital Gains Tax. If you transfer the property to the company, this will be treated as if you\u2019ve sold the property to the company. If the property has gone up in value since you originally bought it, you\u2019ll have to pay up to 28% capital gains tax on the difference, subject to any tax reliefs and allowances.<\/li>\n<li>Your Mortgage. If your company needs a mortgage to buy the property from you then watch out as in most cases the interest rate is higher for commercial or company mortgages than it is for individuals.<\/li>\n<li>Once the property is transferred, it is owned by the company, not the landlord. If something happens to the company, all its assets will be exposed including the property that you put in it.<\/li>\n<li>At some point in the future if you sell the property the company will pay Corporation Tax on the profits and the balance of the money from the sale will remain in the company. In order to get access to the funds to enjoy you\u2019d need to take it out of the company either as salary or dividends or other means. You\u2019d then pay additional tax on that income.<\/li>\n<\/ul>\n<p>If this all sounds bleak there are some situations where you can reduce or eliminate the pitfalls above and enjoy some of the benefits of holding your properties through a limited company.<\/p>\n<ul>\n<li>If you\u2019re buying a new property then a limited company could be a good idea. But if it\u2019s an existing property and you\u2019re only managing one or two properties, I\u2019d say: don\u2019t bother. You\u2019re better off paying just a little bit of tax now instead of triggering all these taxes and then having to pay additional double tax if you sell the property in the future.<\/li>\n<li>Partnerships \u2013 If you currently run your BTL through a properly arranged partnership business, then transferring into a limited company could be a good idea because some of the tax burdens above could be reduced.<\/li>\n<li>Legacy planning. Landlords who want to leave their BTL properties to their children could consider the pros and cons of a Family Investment Company as an alternative to a Trust.<\/li>\n<\/ul>\n<p>In summary: it\u2019s complicated and unwise to move BTL properties into a company without taking professional advice. While there\u2019s no simple answer to the question, in general I would say that with only one or two existing properties in your name, it\u2018s probably not a good idea. If you\u2018ve got 6-10 properties, it could be worth your while to look at how you can gain the benefits of a limited company without triggering unnecssary taxes and costs.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>It seems a long time ago but back in November 2015 George Osborne disclosed plans to restrain the buy-to-let (BTL) market, implying its growing attractiveness was leaving first time buyers competing with landlords for the limited number of properties on the market. One of the things George Osborne did was cap tax relief on BTL [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1],"tags":[],"_links":{"self":[{"href":"https:\/\/glastonburypropertynews.co.uk\/index.php?rest_route=\/wp\/v2\/posts\/430"}],"collection":[{"href":"https:\/\/glastonburypropertynews.co.uk\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/glastonburypropertynews.co.uk\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/glastonburypropertynews.co.uk\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/glastonburypropertynews.co.uk\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=430"}],"version-history":[{"count":1,"href":"https:\/\/glastonburypropertynews.co.uk\/index.php?rest_route=\/wp\/v2\/posts\/430\/revisions"}],"predecessor-version":[{"id":431,"href":"https:\/\/glastonburypropertynews.co.uk\/index.php?rest_route=\/wp\/v2\/posts\/430\/revisions\/431"}],"wp:attachment":[{"href":"https:\/\/glastonburypropertynews.co.uk\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=430"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/glastonburypropertynews.co.uk\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=430"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/glastonburypropertynews.co.uk\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=430"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}