With the governments planned Restriction on Finance Cost Relief for Individual Landlords – many property owners are considering moving some- or all of their portfolio into a Limited Company. As a limited company, the property owner would then be able to deduct the entire finance cost as business expense. If the landlord considers themselves to be running a property business- in other words spending more than 20 hours a week running the business (or employing someone else to run the business)- they can transfer the properties across by simply by converting the business to company status.

When converting a business to company status Section 162 Incorporation may allow you to avoid the requirement to pay Capital Gains Tax. When the new business is set up any equity in the properties transferred across becomes shares in the new company and can be offset against any capital gain. As long as the equity in the properties exceeds any capital gain there should be no Capital Gains Tax payable.

In addition Land and Property Transaction Tax (LPTT) can also be reduced or even avoided if the properties are transferred from a partnership (e.g. husband & wife) into a Limited Company.

From April 2017 the government will restrict the amount of Income Tax relief landlords can get on residential property finance costs to the basic rate of tax. The government will introduce this change gradually from April 2017 over 4 years.

This means that in the next 4 years landlords that are currently paying higher rate tax will lose 50% of the tax relief they currently receive on their mortgage interest payments.

By the method of calculation that HMRC are planning to uses it will also mean that many landlords will become higher rate tax payers and lose a proportion of the relief they currently obtain.

https://www.gov.uk/government/publications/restricting-finance-cost-relief-for-individual-landlords

In addition the government have created a new Land and Property Transaction Tax (LPTT) of 3% for individuals purchasing an additional residential property.

If landlords do nothing many of them will receive ever increasing tax bills over the next four years.

Eg- a higher rate tax payer with one rental property receiving £800 rent and monthly mortgage interest payments of £400 will be taxed an extra £960 per year. That figure is multiplied by the number of properties they own.

Landlords who have high mortgage balances in relation to their property values will be proportionately worst hit. Some will end up being taxed more than their net profit.

To avoid this many landlords are planning to

1) Sell some or all of their properties. This requires carefully planning to avoid high capital gains charges.

2) Transfer their portfolio into a limited company. If done properly this could potentially reduce the landlord’s tax liability considerably. There are many routes that can be used that would help the landlord to avoid Land and Property Transaction Tax on the transfer and avoid paying high levels of tax on the rents received thereafter.

Some of the best bargains in the property market are found ‘Off Market’. These are properties that the owner wishes to sell but has chosen not to go down the traditional route of using an estate agent or solicitor. There are a number of reasons why an owner may wish to sell off market but usually it is because they require a quick sale and do not wish to go to the time and expense of getting a home report, arranging viewings etc. At Spyder Properties we are offered a number of Off Market properties every month. This week we have been offered the following, which look particularly interesting.
A portfolio of 10 one and two bedroom rental properties in the Scottish Borders. Good discount on market price as well as good yield.
One bedroom flat in Leith, currently tenanted with a substantial saving over market value.
If you are interested in these- or receiving more information on Off Market properties please contact us.

In his December announcement the Scottish Finance Secretary added an additional 3% Land and Buildings Transaction Tax on all second residential property transactions over £40,000 from April 2016.

This means that any Buy To Let property that completes after 1st April will be liable for this tax on top of any other LBTT tax that is due.

This does however give 2 ½ months to increase your portfolio and avoid the new tax. With interest rates on Buy To Let Mortgages currently as low as 2% (typically around 2.5%) buy a rental property is unlikely to be as affordable in the foreseeable future.

Spyder Properties has been offered a number of flats that would make ideal rental properties. They are all situated in Edinburgh and Leith and priced between £115,000 and £300,000. The owners are looking for quick sales. If you are looking to expand your portfolio and would like further details please contact bill@spyderproperties.com