Buy to let – personal or company ownership
There is no simple answer to which is the best option, following the significant changes made to how the income is taxed when property is not held through a company.
Three major changes are:-
- Restriction of higher rate tax relief on loans and finance costs being phased in from 6 April 2017 (affects just individuals)
- 3% stamp duty land tax surcharge for second or subsequent residential properties (affects both individuals and companies)
- Exclusion from the general reduction in capital gains tax rates (affects individuals but not companies which are taxed at corporation tax rates – 20% at present)
Factors that affect which option is best include:-
- Rate of property value increases
- Inflation (allowance is given for inflation in working out gains realised by companies)
- Rate of interest on borrowed money and whether this is affected by whether the borrower is an individual or a company or whether the individual is a higher rate taxpayer
Depending on your other sources of taxable income, you might be able to extract some of the companies’ profits at a tax rate of 0% due to the new dividend and savings allowances.