Landlords are constantly dealing with several financial challenges. The tax bills keep creeping up, mortgage interest relief has been stripped back, and you are wondering if there is a smarter way to hold your investments.
Transferring your properties into a limited company is an option to mitigate these problems, but is it worth it?
For many, it is all about tax efficiency.
Lower tax rates
If you own property personally, rental profits are taxed at Income Tax rates of 20, 40, or even 45 per cent.
Companies, however, pay Corporation Tax, currently at 19 per cent for profits under £50,000 and 25 per cent for higher amounts.
Full mortgage interest relief
Unlike individual landlords, companies can deduct mortgage interest in full as a business expense. This can be a game-changer for those with large loans.
Retained profits
If you don’t need to take all the income out, leaving it in the company allows for reinvestment without the tax hit you would face as an individual.
Potential estate planning benefits
Passing down shares in a company can sometimes be more tax-efficient than transferring physical property.
Sounds good so far, right? However, there are a few hurdles to consider:
If you own multiple properties, are in a high tax bracket, and want to reinvest profits, a company structure could be a good fit.
However, if you only have one or two rentals and rely on the income, the costs might outweigh the benefits.
Before making any big decisions, it is worth running the numbers with an expert.
Get in touch with our team of accountants today to explore your options.
