Are more buy-to-let landlords setting up companies?

 In Property

Buy-to-let property has long been considered a safe and profitable investment for those with the capital to stump up for a deposit. That was until two successive announcements were made by the Chancellor during the summer budget and autumn spending review, which cut tax relief to just 20% (from April 2017) and increased stamp duty by 3% respectively.

However, it seems some buy-to-let stalwarts haven’t taken long to figure out how they can keep generating returns on their property investment. By setting up and investing through a limited company, landlords (especially those in higher or additional-rate tax brackets) can make significant efficiency savings. While equally effective for those with a large property portfolio, even landlords with just a single property can keep their investment within a corporate structure.

This allows rental profits to be taxed at a corporate, rather than income-based rate. The corporate tax rate currently stands at 20%, however the government has confirmed that this will fall to 19% in 2017 and 18% in 2020. Landlords can also use dividends to claim profits if put through a company.

Dividend tax is also increasing, with April 2016 heralding the start of dividend payment tax exemptions of just £5,000, with those on a basic rate taxed at 7.5% thereafter, while higher-rate and additional-rate taxpayers would be charged 32.5% and 38.1% respectively. Nonetheless, this would still prove a more tax efficient option for landlords than the combination of tax relief cuts and stamp duty currently proposed by the government.

If you’re a buy-to-let landlord looking for accounting advice, why not get in touch with our expert team today?

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