Using a limited company vehicle has become increasingly common for landlords with the introduction of portfolio lending rules and, more pressingly, changes to the mortgage interest tax relief.
As a result limited company products have reached record numbers with this growth expected to continue.
However, speaking at the Buy to Let Market Forum in Cardiff, Paragon regional sales manager Andrew Rudkin (pictured) highlighted some of the reasons limited company vehicles may not be right.
He also emphasised that it was very important brokers ensured their clients obtained some sort of tax advice.
The key points Rudkin raised were:
Client’s end game
The first question is, what is their exit strategy, what are they looking to do with this property? Is it income, is it growth, is it a combination of both?
Brokers should be trying to drill down to exactly what their client wants to do with this particular property.
Limited companies can last longer than any individual landlord and can be potentially used for reducing Inheritance Tax (IHT) liabilities.
Before the tax changes a lot of the limited company business was for succession planning – whereby owners have their children as shareholders and therefore can pass the assets through and reduce the IHT bill.
There is very little advantage to putting a property into a limited company if the landlord is going to sell it on it straight away.
Individuals will lose the Capital Gains Tax relief of £11,700 and the tax for selling within a limited company is currently at 19%. So it is again important to consider the individual taxation impacts.
Do they need income or not? Taking monies out of the limited company can be costly.
Plenty of landlords will buy property in a personal name but they have to pay tax on the income generated. If it’s within the limited company they can leave it there, but when they take it out they do have to bear in mind the cost.
Extra costs for setting up
There will be finance costs and accountant costs. Clients will need an accountant, so they are going to have to assess this among their deciding factors too.