Time to move investment property into a limited company?

Written on 10 October 2016 by Alistair Boscawen in Frequently Asked Questions


Purchasing a buy-to-let property or second home in Belgravia or other areas of prime central London continues to be a wise investment.

With the Bank of England base rate at a record low of 0.25%, landlord mortgages on offer at under 2.5% and luxury property in Belgravia commanding monthly rents in excess of £10,000, demand for buy-to-let property in prime central London remains strong.

Time to move investment property into a limited company? However, a growing number of landlords and investors who already own property in Belgravia are investigating ways of paying less tax by transferring their asset into a limited company.

Private landlords with property in Belgravia are currently able to claim tax relief back on their mortgage interest at the rate they pay income tax, which ranges from 20% for basic rate taxpayers up to 45% for landlords that pay the highest rate of tax.

For example, landlords who pay the highest rate of tax with an interest-only BTL mortgage paying £1850 a month can claim over £830 of that cost back from the HMRC in tax relief.

This helps explain why investors who did not need to take out a mortgage to purchase a property in Belgravia, Knightsbridge, Mayfair or any other part of prime central London that Best Gapp has an in-depth knowledge of took out a BTL loan for tax purposes.

Under rules coming in from April next year, the £830 figure will fall to just £370 by 2020.

The government has stated, however, that landlords who own rental property through a limited company can continue to deduct up to 45% of their mortgage interest payments when calculating their property profits after April 2017.

5 more tax advantages of owning rental property through a limited company

Second home owners and landlords who own properties in Belgravia through a limited company are allowed to… 

1. Pay 20% corporation tax on rental property profits up to £300,000 per year instead of income tax at their personal tax rate of up to 45%. It should also be noted that the corporation tax rate is due to drop to 18% by 2020.

2. Reinvest rental profits in new BTL properties at relatively low tax rates. It is more tax efficient for investors looking to expand their portfolio of rental homes to hold the properties in a company and use any profits to buy additional flats or houses.

3. Pay tax on the capital gain made from the sale of rental properties at the corporation tax rate.

4. Use their Dividend Allowance to receive £5000 of tax-free income from investment property each year.

5. Avoid inheritance tax and the associated costs of transferring deeds by making any children they have shareholders in the property company.

Further financial benefit

In addition to the tax advantages of switching rental property ownership into a company, this type of property ownership limits a landlord’s financial liability to a fixed sum.

In practical terms, this means that if the company fails, the business owner is only liable for the money invested in the venture.

It should be noted that the changes to tax relief on BTL mortgage interest payments are being phased in over the next three years so landlords do not need to transfer ownership of rental property in Belgravia to a limited company immediately.

When exploring their options, Best Gapp would strongly advise BTL property owners to seek professional advice. This is because part two of our Guide to Rental Property Ownership in Belgravia covers the costs involved when setting up a limited company.

Click here if you’re looking for an independent mortgage advisor.

Alistair Boscawen

Alistair has 32 years’ experience as an estate agent, starting in the country house department of one of London’s main international agencies before moving to the Knightsbridge house department of the same agency and learning the difference in values between freehold, long lease and short lease houses in Knightsbridge, Belgravia, Chelsea and Mayfair.

All articles by Alistair Boscawen

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