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With the new tax relief rules announced in the July Budget, should I change my status from an individual to a limited company?

Last year I bought my first buy-to-let property. With the new tax relief rules announced in the July Budget, should I change my status from an individual to a limited company? I have a full time job and have just moved into the 40 per cent tax bracket.

From 2017/18 higher and additional tax rate (40% and 45% respectively) paying landlords who personally own buy to let property will only be eligible to claim tax relief on financial costs – including mortgage interest – at the basic rate of 20%, instead of at the higher rate.

For the most part, the changes do not affect basic rate tax payers or landlords who own their buy to let property in a corporate vehicle (usually SPV Limited Company).

Transferring your rental property from your personal name into a limited company can be a costly exercise, so you will need to seek professional advice from a qualified accountant to determine whether this will be the best course of action for you.

Firstly, the property must be legally sold, and this gives rises to a number of potential costs:

• Stamp Duty Land Tax on the sale to the limited company
• Capital Gains Tax
• Early Repayment Charges on existing mortgage and remortgage costs
• Set-up and ongoing costs of operating a limited company

Take a look at finance director, Simon Whittaker’s blog on this topic for more detailed information. How the restriction of relief of BTL mortgage interest will affect landlords.

You may decide it’s not worth the cost and just take the tax hit. Going forward, if you plan to purchase more buy to let property, it might be worth buying them in a corporate vehicle. Again, you will need to talk to your accountant to help you determine a strategy.

Currently there is a good selection of buy to let mortgages for limited companies available – around 137 of the 1,000 or so on the market - although pricing is a bit higher. Do get in touch to talk through the options. We are happy to work in conjunction with you and your account to help you calculate financial costs for whichever route you decide to take.

Other reading on this topic:

Summer Budget 2015 and the implications for landlords

FAQs on buy to let mortgages for limited companies


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