Buy to Let: Should I buy property via a limited company or personal name?

Posted on 1 March 2017 by Richard

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In just a few weeks’ buy-to-let investors who own property in their personal name will be hit by gradual tax changes that could see their profits slashed and their tax bill increase. From April 2017 the Treasury is going to start phasing in changes which will eventually see landlords pay tax on the entire rental income they generate from their properties.

If you already own a buy to let property, the changes mean that you’ll no longer be able to deduct the cost of mortgage interest. Instead, you’ll benefit from a tax credit equal to 20% of the interest cost. What that means is that higher-rate and additional-rate taxpayers will pay considerably more tax - and in some cases you may even find yourself in a situation where you pay tax and make no profit at all!

Why Should You Consider Limited Company Buy to Let?

A higher rate taxpayer who pays 40% tax with a rental income of £15,000 and a mortgage interest of £10,800 (66% of rental income) will see their profit fall from £2,520 in 2016/17 to £360 in 2020/21.

Below is the worked example of how this relief will be phased in:

In the above example you would be £2,160 worse off between 2016/17 vs 2020/21. By forming a limited company, you could help tax liabilities and potentially be better off in the long run (read our full guide to the BTL tax changes here).

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What can you do?

Download our free guide: find out about the pros and cons of setting up as a limited company and decide if it's the right thing for you.

Speak to a mortgage expert

For more information on the upcoming changes or to speak with our experts on the pros and cons of LTD company BTL call us now on: 0344 346 3670 or enquire here.

Categories: Buy to let, Government


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