Ilyas Patel Accountants in Preston
Ilyas Patel Accountants in Preston
Navigating the property market can be daunting, especially with ever-changing tax rules and regulations.
Dive deep with us into the benefits and complexities of transitioning properties to limited company holdings.
This has become a hot topic since the 2015 mortgage interest tax relief changes.
Understand how these amendments might affect you and discover ways to optimise your investments.
Reading on could be the key to unlocking better returns on your property assets.
(Read Time: Approx. 6 minutes)
A limited company is essentially an entity distinct from its operator, no matter its size.
The proprietors are named “shareholders” and can span individuals to corporate entities, while the administrators are termed “directors”.
Notably, one individual can assume both roles.
Significantly, the financial liabilities of the company remain autonomous from the personal coffers of the owner.
When discussing property-oriented limited companies, they are often limited by shares.
The liability of shareholders is restricted to their investment amount in the company.
Still, for property investments via limited company buy-to-let mortgages, lenders consistently require personal assurances.
In scenarios of mortgage default, the guaranteeing shareholder stands personally liable.
Why might one contemplate a shift to a limited company for property holdings?
Primarily, the objective is maximising income, whether through regular profits or appreciating property values.
When the ramifications of Section 24 surfaced, landlords with mortgages began probing strategies to safeguard their profits.
The allure of limited companies grew, thanks to the tax-deductible nature of mortgage interests and other associated tax privileges.
Nevertheless, the decision is intricate, with advantages and detriments worth noting.
For those in the higher and additional income tax brackets, the removal of mortgage interest tax relief could make the prospect of incorporation more tempting.
Additionally, landlords with extensive property portfolios might find tax advantages in limited company investments.
The tax differentials between personal ownership and limited company ownership are stark.
In the personal realm, income tax slabs include:
Contrastingly, corporation tax stands at 19% for profits below £50,000.
Transferring properties to a limited company can often lead to tax efficiencies, particularly with corporation tax being potentially lower than personal income tax for certain profit thresholds.
Property assets within a limited company might, in some situations, be structured in a way that can offer inheritance tax advantages. Always consult a tax adviser for specifics
Owning property through a limited company can limit personal liability. In the event of any legal claims or debts, the company acts as a separate legal entity, potentially protecting individual owners.
Insuring multiple properties under a company might attract better rates or more comprehensive cover options than insuring properties individually.
Initial setup costs, such as registration fees and professional legal and tax advice, can add to the financial burden of transitioning to a limited company structure.
Maintaining a limited company might lead to recurring expenses, like accountancy services and annual filing costs, which wouldn’t be applicable for individual landlords.
Some mortgage lenders might not offer products to limited companies or might have stricter lending criteria, potentially limiting your financing options.
When transferring property, you personally own to a limited company, the company might be subject to stamp duty, as it’s considered a property purchase by the company.
The sale of the property to the company might be seen as a disposal, possibly triggering capital gains tax. It’s essential to consult a tax adviser for specifics.
Typically, interest rates for buy-to-let mortgages taken out by limited companies can be higher than those for individual borrowers. This can affect the long-term cost of any borrowed funds.
Despite the aforementioned challenges, seeking counsel from a seasoned tax adviser, such as the Tax Expert, can potentially navigate you through these obstacles. With our expertise, these challenges can be transformed into opportunities, ensuring you save money in the long run.
Transitioning properties to a limited company inevitably involves expenditure, from professional advisory fees, registration charges with Companies House, capital gains taxes, to stamp duties and increased mortgage interest rates.
If after deliberation, the switch to a limited company doesn’t seem financially prudent, alternative routes to consider include re-mortgaging to reduce monthly costs, scrutinising other property-associated expenses, or even contemplating a property transfer to a spouse or partner in a lower tax bracket.
In the realm of property management, the move towards incorporation is layered with complexities and implications.
Consultation with a professional is paramount to navigate these waters. If you’re seeking clarity, please do not hesitate to get in touch with us at Ilyas Patel Accountants. Contact us today at 01772 788200 to find out more about how we can help, or WhatsApp us out-of-hours at 07787 010190.
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Kind regards,
Ilyas Patel