Should you buy investment property via a limited company? RDP Newmans looks at the tax implications and why it could be a smart move

The government has in the last few years introduced some far-reaching changes to the buy to let market for individual landlords. These include the following:

  • Withdrawal of the 10 per cent Wear and Tear Allowance on furnished property lettings
  • Tiered reduction on interest deductions starting from 2017/18 where the deduction is restricted by 25 per cent of the mortgage interest and culminating in 2020/21 where the relief is restricted to the basic rate. This will result in a significant tax increase for higher rate taxpayers with mortgages on their buy to let portfolios.

One way of mitigating these changes is to transfer properties to a limited company. Currently there is no restriction on interest deductibility for limited companies.

However, the following should be borne in mind before going down this route:

  • There are additional compliance costs involved with running a company.
  • Mortgage providers might be unwilling to transfer the mortgages to a limited company
  • Potential Capital Gains Tax and Stamp Duty Land tax on the transfer of the properties to a limited company.
  • Property indexation allowances will be frozen from 1 January 2018 to align with property investments held by individuals.

Based on current legislation, on balance it would be advantageous to acquire new property investments via a limited company and to transfer existing property investments to a limited company. However, the tax aspects can be complex and we would recommend getting advice prior to taking any course of action.

Pankaj Jobanputra

Pankaj Jobanputra

Head of Audit & Accounts

Posted in Latest Business News, Property News.