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Landlord Tax Restructuring – the Three most Popular Strategies
This article is an external press release originally published on the Landlord News website, which has now been migrated to the Just Landlords blog.
Landlord Tax Restructuring – the Three most Popular Strategies
Landlord News has obtained insightful information via The Landlords Union about the three most popular methods to avoid the consequences of restrictions on finance cost relief, which came into force in April 2017.
Over the next four years, legislation will increasingly prevent individual landlords treating their finance costs as expenses. Instead, a tax credit will be applied at a flat rate of 20% of finance costs. This will push several landlords into higher rate tax bands and result in loss of other benefits. In some cases, personal allowances will be lost completely and result in as much as 40% tax on finance costs!
The three most popular restructuring strategies are:
For married couples, the first level of tax planning is a restructure of your income to optimise all available basic rate tax allowances between husband and wife (currently £43,000 each). The tax changes to only landlords whose total taxable income (including mortgage interest) exceeds £43,000 a year. The Chancellor of the Exchequer has confirmed this figure will increase to £50,000 by the year 2020. Restructuring income between spouses is achieved by changing the percentage of beneficial ownership and does not necessitate refinancing.
A partnership enables landlords to allocate profits disproportionately to ownership and to allocate drawings disproportionately to profits. For example, if the landlord’s adult children or parents help in the running of a business, they could be made partners. This can result in significantly lower tax bills as well as being a useful IHT (Inheritance Tax) planning tool. Furthermore, it’s a step towards incorporation.
Incorporation can wash out all capital gains to date. Also, companies are not affected by restrictions on finance cost relief. However, beware CGT (Capital Gains Tax), Stamp Duty (LBTT in Scotland) and refinancing costs when considering the transfer of your properties to a company. Under the right circumstances, however, all of these are avoidable
The Landlords Union has released a suite of tax tutorials, which are free to download in PDF format.
For further details, please see: https://www.property118.com/Tax118
