Buy-to-Let Tax Exemptions?

Further to a chat recently with a London Tax expert, some potentially interesting news below on tax exemptions for BTL portfolios (note we are not tax advisors, please seek your own independent tax advice):

Restricted Finance Cost Relief For Individual Landlords Comes Into Full Effect in the Tax Year 2020-2021 

As most private landlords should be aware by April 2020 the offset of the interest cost on mortgage payments on privately owned rental properties will be limited to that of the basic tax rate of 20%. All remaining interest costs on mortgages will not be an allowable deduction. For many, especially those with high loan to value mortgages, the loss of the full offset of all of the interest cost against rental income will be a significant factor in the cash flows of those that hold properties as individuals or partnerships. 

For those with this problem this may be the time to consider incorporating their property holdings into a UK limited company as this offers a broad range of benefits. Not only is there the full offset of all finance costs, but also the annual profits can be retained by the company for re-investment at corporation tax rates (17% by tax year 2020-21) and profits, when taken, paid in the form of dividends, which do not attract National Insurance. Aside from the benefits of limited liability protection structuring can also address longer term issues such as eventual succession planning whilst leaving control with the originators of the property portfolio. In all the holding of property in a company can provide very significant benefits and the enhanced accumulation of profits, can over time, lead to a significant improvement in the size and value of the portfolio held. 

If, after careful appraisal, a portfolio is to be restructured into a more efficient corporate business model this can, with proper guidance, be undertaken without incurring a liability to capital gains tax or stamp duty land tax.

The key to this is to work with experienced tax counsel to ensure that any restructuring is fully compliant with the law and the professional conduct in relation to tax rules so as to ensure HMRC’s acceptance of the reorganisation.