The tax year 2016/17 was the last year that higher and additional rate income taxpaying landlords could claim full relief on the costs incurred when taking out a Buy to Let mortgage.
If you're a residential landlord, the main finance cost is the interest you pay on the BTL mortgage but it may also include interest on loans to buy furnishings and any associated fees for taking the mortgage out, such as:
** disclaimer: do make sure you take professional advice or ask your tax office for clarification.
Following a 4 year phase in period, and now in less than a year's time, from 6 April 2020, if you are a residential landlord and you own your rental property personally, you will not be able to deduct the finance costs from your property income when calculating your taxable profit. Instead, you will receive a basic rate reduction on the finance costs from your income tax liability.
We review each case individually for our landlord clients and work with them to review whether owning their rental properties in a limited company is a more tax-efficient option because they pay Corporation Tax not Income Tax and so the relief restrictions don’t apply.
Corporation Tax is currently 19% (tax year 2018/19). In the tax year 2020/21 it will be 17%.
It is clear that investing through a limited company can save a lot of tax. However, the profits and cash held in the limited company will belong to the limited company and there will be further tax payment in order to extract the profits into the shareholders hands.
In most cases there will be tax savings (compared with personal ownership) but you will need a tax specialist to advise you on your own circumstances. If you are currently a basic rate taxpayer, you will possibly find that a further BTL pushes you into the higher rate tax bracket, so you still need to consider this option.
it is quick and easy to set up your own SPV Ltd company online with the HMRC website and it can be an existing SPV or brand new, but lenders will limit your options if you want to borrow on more complex properties like HMOs, multi unit freehold flats, mixed use or commercial premises.
Lenders usually ask for a portfolio breakdown,(we can supply a template on request), maximum 4 directors per Ltd company.
Setting up an SPV Limited Company
SIC code 68209 for the letting and operating of owned or leased real estate
SIC code 68100 for buying and selling of own real estate
SIC code 68209 for managing your own companies