The movement into Limited Companies has been seen across the market place and I have landlords with portfolios of between 5 – 40 properties already starting the move across. Guided by their accountants they’re making positive steps to make this change in the most economically expedient way possible.
The benefits of being part of a limited company are;
· - Higher tax relief - From 2017 to 2020 the amount of Buy to Let tax relief individual landlords can claim back will be progressively cut from a maximum of 45% to 20% for top rate taxpayers. However, this change does not affect Limited Companies.
· - No tax on dividends ≤£5,000 for individuals – from April 2016, the Dividend Tax Credit will be replaced by a new tax-free Dividend Allowance of £5,000.
· - No income tax when reinvesting profits to secure further properties. Although corporation tax is payable on trading this is lower than the higher income tax rate
· - Personal funds can be drawn back out of the company (restrictions apply)
Disadvantages of using a Limited Company
· -No Capital Gains Tax (CGT) allowance when the company sells a property
· - Higher mortgage rates – Most lenders charge higher interest rates and fees for Limited Companies
· - Reduced choice of lenders and mortgages – Many lenders do not offer mortgages to Limited Companies
· - Additional cost of running a Limited Company
It is almost impossible for your letting agent to provide advice on whether the move to a Limited Company is right for you. Transferring properties from an individual to a Limited Company is a complex process, not to be undertaken lightly, so my best advice would always be to speak to your accountant. If you’re struggling to find a good accountant who is fully up to date on the recent tax changes affecting landlords, give us a call and we can point you in the right direction.
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