This month, our guest post from Alan Crawford from Lyndhurst Accounting has shared his expert advice for buy to let property owners.
For those of you with a single or maybe several buy to let properties in your own name, you will be only too aware of the recent tax changes which will ensure that, by April 2020, you will only be able to obtain tax relief at a rate of 20% on your mortgage interest. These new rules have been phased in from April 2017 so many of you will see the effect of it for the first time when you submit your 2017 – 2018 tax return.
There is no problem if your marginal tax rate is 20% but, with the revised way that the rental income will be calculated, it is highly likely that many of you will become 40% taxpayers without realising it. Those who will suffer the most will be higher rate taxpayers and those just under the higher rate prior to the addition of the rental income. Their situation is exacerbated if their borrowings are high.
What can you do?
For those with existing properties, you can take one of 3 actions:
Let’s assume, however, that you are either a first time buyer in the buy to let market or wishing to add to your portfolio. Do you buy that property in your own name or do you form a company and buy the property through the company? My advice depends upon your intentions.
Consider these questions:
If the answer to any of these questions is YES then due consideration should be given to buying that property in a limited company. The advantages are as follows:
There are some disadvantages but if you have answered YES to the above questions then these are far outweighed by the benefits that you will receive.
It is a big decision. Do not take it lightly. You really do need to go through the figures and potential savings to determine what is right for you in your particular circumstances.
If you have any questions or concerns please do call me on 0117 9625829 or e-mail me at firstname.lastname@example.org