Jason Whitehead - Vitality Mortgages
The question I'm asked more than any other is how should I own my BTL property ?
My answer is always the same I’m not a tax expert I’m a mortgage and protection specialist speak to a Taxation Specialist. I can facilitate a mortgage on any of the ways he suggest is best for you.
BTL Landlords do however need to know, to seek specialist tax advice to work out how best to deal with BTL Properties that they hold in their own names given the well documented changes to the income tax.
Hopefully Landlords are aware, the government no longer allows individual BTL property investors to offset all of their mortgage interest against their profits. These changes are being phased in. Currently individual landlords can offset 75% of their mortgage interest against their profits. This falls to 50% in 2018, 25% in 2019 and 0% in 2020.
The solution which has been touted by many in the media and others is to transfer your Buy to Let properties into a company whose shares are owned by you. This gives you full control of the property asset, but instead of income tax, the company will pay corporation tax.
The current rate of corporation tax is 19%. What is even more attractive is that the level of corporation tax is due to fall to as low as 17% from 1 April 2020. This all sounds like a bit of a no brainer!
Transferring the Property to a company isn’t all plain sailing though.
If an individual wants to take dividends out of the company from this rental income, this will be taxed. What is different though is that you can take the dividend at a time to suit yourself to ensure maximum tax efficiency.
Also, when you transfer the Property to a company you will also be, (most of the time) putting some of your own money in – the equity that you had in the Property prior to the transfer to the company.
Our clients often make arrangements so that this equity becomes a director’s loan (from you to the company). Most landlords have equity in the property and will not be financing the transfer to a company with 100% loan to value mortgages.
When these director’s loans are repaid by the company to the director(s), no income tax will be due on them. In effect, money can be taken out of company over time on which no income tax is paid. So, all good there then?
One of the major costs which is incurred by individuals (as opposed to a partnerships) who are transferring Buy to Let properties into a company is Stamp Duty Land Tax.
There seems to be quite a lot of confusion in relation to how much Stamp Duty Land Tax is payable when a residential property is transferred to a company. As this is in effect, a self-declared tax, getting it wrong can store up problems for the future if the SDLT Return is subsequently investigated by the tax authorities.
For individuals transferring properties into companies, the companies pay SDLT at the normal rate (which is calculated on either the price paid for the transfer or the value of the Property being transferred) plus an additional rate of 3%. This can turn out to be rather expensive, however, it is up to the individuals to determine whether it is more cost effective to pay a large SDLT bill now or become penalised for income tax on an ongoing basis whilst they hold the Buy to Let asset.
To fully understand the tax consequences of transferring (or not transferring) the Buy to Let property into a company, you should take specialist tax advice
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