9 February 2016
9 February 2016,

George Osborne recently announced proposed tax increases for landlords – including a 3% rise on stamp duty for buy-to-let properties for sale, plus higher taxes on rental incomes.

The changes have raised considerable concern amongst those investing in property (UK) – as either a second home, or to rent. Indeed, the Bank of England’s research suggests that as many as 15% of buy-to-let owners may sell if their mortgage interest was no longer covered by their rental income – with a further 45% claiming they would sell if their property value dropped by 10%.

Conflicting Opinions

However, the impending tax changes have also caused buy-to-let mortgage rates to fall considerably, creating more property investment opportunities. Also, as more landlords sell, more suitable properties come to market – and for the savvy investor, this presents a chance to make excellent profit.

Setting Up a Limited Company

Landlords have spotted property investment opportunities – plus the potential to avoid paying increased tax, by establishing themselves as a limited company, instead of buying the houses in their own name.

Currently, those who invest in buy-to-let property for sale have to pay income tax on any residual profit after they’ve paid mortgage interest. So, for example, if you had a £150,000 mortgage for a property with an annual rental income of £9,600 a year, tax would only be due on the difference after mortgage interest (£6,000 a year). So you’d be paying tax on just £3,600.

However, in 2020, this is set to change, and you won’t be able to deduct your mortgage interest. This means you’ll be paying tax on the full £9,600 income.

The way to avoid this is to purchase properties as a limited company. This means you’ll still be able to deduct mortgage interest, plus you’ll only pay 20% corporation tax, rather than up to 45% income tax. Indeed, if you’re planning to buy 15 properties or more, you can even avoid the extra stamp duty – though you’ll need to move fast, as it’s anticipated that the government will be closing down this loophole.

Investing in Property UK as a Limited Company – Quick Guide

If you do decide to seek property investment opportunities as a limited company, there are a few things you need to be aware of.

  • Complexity – It is more complicated to set up as a limited company, which may deter landlords who simply want to invest in the one property.
  • Annual returns – As a registered company, you’ll need to file annual returns and accounts. Legally, this must be done by an accountant, which is another cost you’ll need to factor into your expenses.
  • Transferring existing properties. If you’re planning to transfer your existing property portfolio to your limited company, you may have to pay stamp duty, not to mention capital gains tax. However, this depends on the value of your properties.

Going Limited or House Auctions?

Setting up as a limited company isn’t going to be a suitable option for everyone – and it’s important to review options carefully before coming to a decision. If you’re only looking to invest in one or two properties, purchasing a house through property auctions (UK) may be a more attractive option. House auctions present the opportunity to purchase a property at a bargain price, which may reduce the amount of stamp duty paid.

Property Seminars at The Buy2Let Shop

If you’re unsure which option is best for you, talk to The Buy2Let Shop in Bromley today. We’ll help you establish how best to invest in property, plus we also offer property seminars, designed to provide you with in-depth understanding of the market.

We’ve also got a huge number of investment properties in London and the UK which aren’t on the general market – providing you with a great opportunity to buy an excellent buy-to-let property at a competitive price. To find out more, simply visit The Buy2Let Shop website today.ty

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