Allowable finance costs claims reducing 25% every year cumulative from 6th April 2017 to 100% from 6th April 2020.
The tax relief on mortgage interest set at 20% even though you are a higher rate taxpayer.
Removal of the 10% wear and tear allowance
Landlords actions and challenges
Landlords will pay more taxes on their property portfolio due to recent changes and moving their properties over limited companies to save taxes but facing the challenges of refinancing and paying CGT and SDLT during the transition process.
It is possible to avoid taxes provided you meet with the conditions and take advantage of reliefs available for CGT and SDLT. In most of cases CGT is avoidable however with SDLT, there are lot of considerations you need to look at that depend on individual case bases and the nature of formation of partnership.
CGT
Properties transfer over limited companies are subject to CGT. If you can provide the proof of working with/for your properties, then you may be allowed to incorporate your property business without having to pay CGT.
SDLT
You don’t have to pay SDLT when you transfer property or land to another person or limited company provided there is no chargeable consideration (or less that £40,000). However, when you transfer a property to a connected party (wife / husband / kids) or linked transactions, then SDLT will be based on market value of the property at the time of transfer. SDLT may be avoided provided you have genuine business partnership and not just to avoid taxes. The SDLT treatment of partnerships is a very complicated/ unsatisfactory area, which requires careful considerations as anti-avoidance rules are in place.
Mortgage
You may need to inform your mortgage company if you transfer your properties to a partnership/company and mortgage costs are higher for properties in an incorporated business. You also need to consider the admin fee and financial evaluation fee when doing so.
Summary
All the above points are explained so you know from tax year 2017/18 you have to pay higher income taxes due to 25% reductions every year of allowable finance costs. Also you may need to take necessary steps now to structure your portfolio so you can avoid or pay less CGT and SDLT.
For Clients
We can only advise our clients choosing the route of transferring their ownership over incorporated business after assessing their income and expenses over the period of next 3 years.
We provide two separate calculations and analysis based on these calculations, your future tax bill breakdown of up to 3 years under both scenarios (personal ownership and incorporated business). From the analysis, you will be able to decide of how to structure your property portfolio and under which structure you can save more taxes in future.
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