Is your property portfolio structured in the most tax-efficient way possible?
For landlords with a few rental properties, the way you structure your portfolio can significantly affect your tax bill.
Having property in your personal name can be straightforward, however for higher rate and additional rate taxpayers, the restriction on mortgage interest relief can make this costly for you. Having your portfolio in a limited company may reduce your income tax liability and allow you to retain profits.
Here’s an example below which shows a saving of nearly £1,000:
| Higher Rate Tax Payer (40%): | |
| Rental Income | £10,000 |
| Mortgage Interest | -£8,000 |
| Profit | £2,000 |
| Tax @ 40% (£10k x 40%) | £4,000 |
| Finance Cost (£8k x 20%) | -£1,600 |
| Tax Payable | £2,400 |
| Loss After Tax | -£400 |
| Compliance Costs (£36 x 12months) | £432 |
| Costs Incurred | £432 |
| Tax Paid | £2,400 |
| Total Costs | £2,832 |
| Limited Company (LTD) (19%): | |
| Rental Income | £10,000 |
| Mortgage Interest | -£8,000 |
| Company Running Costs | -£1,800 |
| Profits | £200 |
| Tax Payable @ 19% | £38 |
| Compliance Costs £150 x 12months) | -£1,800 |
| Costs Incurred | £1,800 |
| Tax Paid | £38 |
| Total Costs | £1,838 |
A limited company is not always the right route for you, and if you are a basic rate taxpayer, investing in your name personally would save your overall costs!
Is your property portfolio structured in the most tax-efficient way possible? Please feel free to get in contact with our BTL team at PJCO if you have any questions — we’re here to help. You can book a free discovery call by clicking the link below!
Please get in touch on 01273 441187 or book a discovery call with one of our expert accountants.
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