You may have heard that you pay less tax on your rental income as a landlord if your property is in a Limited company. This is because you pay corporation tax instead of income tax.
Corporation tax on profit for this tax year is currently charged at 19%, which is much lower than the higher rate (40%) and the additional rate (45%) of personal income tax.
However, as with anything, it’s not that simple as there are several things you need to consider.
Firstly, you may still be subject to income tax when withdrawing profits from the company.
Also, when ‘switching’ the property into a Ltd company, what you’re actually doing is ‘selling’ it to the company which is then purchasing it from you.
This means that you will need to factor in all of the usual costs associated with buying/selling a property, including; stamp duty, capital gains tax, legal fees, product fees, mortgage penalties (if your current mortgage is in the middle of a fixed rate term).
Speaking to an accountant/tax adviser will allow you to identify whether this option is suitable for you.
One of our mortgage brokers can help you remain on a competitive mortgage rate, regardless of what you choose to do.
Get in touch for a free initial consultation!