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What I should do with a Buy to Let property or property portfolio

For decades people have relied on buy to let and property as a major asset class or as a form of retirement provision, however, a recent report suggests property and buy to let property has gradually lost its sparkle, you can read my comments published in the Express here on this subject.

So, what are the main options, continue holding your buy to let as a private individual, place the property into trust or move your property into a limited company? holding as an individual has its hurdles due to the tax liabilities and the same for how assets within trusts are taxed not to mention the 6% periodic charge every ten years on gains within the trust.

When dealing with tax affairs there is a difference between tax efficient financial planning and tax advice. It is always wise to speak to an accountant in addition to a financial adviser, an accountant will be able to make the calculations for your own circumstances and present you with their recommendation as to what to due with your buy to let properties. Please note, the below should not be construed as advice and should be viewed as a general overview to gain understanding in relation to this topic.

If you are an investor who is not running a letting business, who owns less than ten buy to let properties held as investments, it is highly likely that the costs involved in transferring properties into a limited company will exceed the benefits. There are so many tax traps.

But if you are operating a large lettings business then the main benefit of using a limited company to hold your buy to let properties is worth considering for the fact that you will be paying corporation tax on profits rather than income tax. This is much lower than the higher rate of tax being 40% and the 45% additional rate of personal income tax. However, you may still be subject to income tax when withdrawing profits from the limited company.

Paying corporation tax means that the recent restrictions on mortgage interest relief and relief on finance costs will not apply, so holding buy to let properties via a company could make sense in specific scenarios when post tax profits are likely to be a lot higher.

Suggesting a limited company is the way to go for everyone is not that simple as there are many pros and cons to consider, for example if you only hold one, two or three buy to let properties. To move them into a limited company, you must sell them to the limited company. This means potential stamp duty or even stamp duty at the higher rate.

Capital Gains Tax of 18% if your total annual income is within the basic rate band or 28% if you are taxed at the higher rate, early repayment charges and the cost of taking out a new mortgage for the company could be high and just some of the pitfalls to be aware of.

You are also unlikely to qualify for entrepreneurs’ relief and incorporation relief, this is due to HMRC regarding property as an investment rather than a trade or business and do not forget about the additional administration and costs to run a limited company, such as accountancy fees, corporation tax and audit costs if the company is large enough.

Selling properties to your company can have a benefit for some buy to let investors as this could create a substantial Directors loan account if mortgages are minimal.

So, the route to go depends on the value of the portfolio, how long you intend to hold the property and do you want the hassle of extra admin.

There are also others areas to consider depending on which route you go down such as Inheritance Tax planning an area we have extensive experience in.

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For more information you can contact David on 01753 839348 or email