Mortgage Interest Cost Relief and UK Property taxation.

We have been asked many questions about transferring property ownership from an #Individual name into a #Company, with most of the question arising out of worries of #PropertyBusinesses becoming loss making or even eventually becoming life threatening to these businesses. While the concerns are genuine, its fair to say that those earning in the basic rate of income (the 20% personal tax rate income band) will not be so much affected.

Given the interest in moving #PropertyOwnership to #Companies, the question that arises is which entities are affected by the changes in the tax relief withdrawal? Its important to remember that these changes only affect investments in residential properties only, at least for the moment. They relief withdrawal affects:

1. Individual landlords
2. Partnerships
3. Limited Liability Partnerships

The net effect is that #Interestcost that one pays on mortgages, will no longer be allowed to be deducted off as an expense before one finds out how much tax they are supposed to pay. For those with mortgage costs as the only cost in their property business, income tax will be effectively paid on the #RentalIncome one collects.

The focus of many #Landlords is on the tax cost in isolation to other matters affecting their business, however, such ‘tunnel vision’, makes one lose sight of the strategic perspective. The case for profitability is high up the ranking of many #PropertyInvestors, but any decision to be made has to evaluate the Income tax effect in the same breadth with the Capital value tax risks like, exposure to Capital Gains Tax #CGT, Inheritance Tax #IHT, Stamp Duty Land Tax #SDLT and Annual Tax on Enveloped Dwellings #ATED, in addition to #PropertyFinancing as well.

With the intervention of the Bank of England’s, Prudential Regulatory Authority, #buytolet mortgages for #ProfessionalLandlords have a different assessment criteria, making it much tougher for them to get #Mortgages. However, those using Accounting systems that has the potential to generate all these reports will find it easier to apply for mortgages at very short notice, since most of the functions are inbuilt. We have partnered with #IntuitQuickbooks to provide the premium package to #PropertyPortfolio owners so that Cashflows, Budgets, Property Schedules and their profitability can easily be evaluated when #MortgageLenders require them.

Are you thinking of moving your #PropertyPortfolio from individual names into a company? Please do evaluate the income tax and capital tax risks that are likely to arise as a result of the move. Where possible, ensure that you know exactly how you will pay for them or how those risks will be mitigated for tax efficiency. As for mortgages, the #FiveYearFixed mortgages have been the preferred choice for many #PortfolioLandlords because they are outside of the PRA regulations.

Below is Shawbrook Bank’s analysis of how inter dynamics between Income tax and profitability of property businesses in the post Mortgage interests relief withdrawal. Though its mainly been looking at the #Buytolet market, it provides a picture to look at the wider market dynamics.

Below is the inter dynamics showing the company ownership correlation between Pretax profits and net profits under a company ownership of properties.

Contact one of our team to discuss how we can help you move your #Properties into a company in a tax efficient way.

The writer can be contacted via Email: [email protected] for a discussion on this topic.

The article is for general information only and not intended to be advice to any specific person. You are recommended to seek professional advice before taking or refraining from taking action on the basis of this publication or other publications and contents of this page. The Financial Conduct Authority does not regulate Tax Advise, so it is outside the protection of Financial services and Markets Act and the Financial Services Compensation Scheme.

William PW Omony MBA is the Manager/ Tax Consultant at Proactive Consult - Property Accountants & Tax Advisers and CEO of PWO Properties, An unregulated Property Finance Intermediary Company that is also delivering innovative strategies in Property Investing, Development, Trading and Refurbishment.

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