Time to incorporate your property portfolio?

With the restriction on the deductibility of rental income for higher rate taxpayers, incorporation of property portfolios has become attractive to many private landlords. The recent fall in value of the property market means now could be the most tax efficient time to make changes. But this is not a ‘one size fits all’ solution. Each case should be considered on its merits.

Despite the tax saving on the interest, whether to incorporate should also be considered in light of other factors, such as:

• how much of the profit is needed for day to day living
• whether the property is provided furnished
• whether the property is a holiday home
• the extent to which you are currently funding family members
• the costs of re-mortgaging through a company and potentially higher rates of interest

All of these factors give rise to different tax consequences and therefore different solutions regarding the best option for you.

You should also be conscious of the tax consequences on incorporation!

If your property portfolio is operating as a trading partnership, it may be possible to obtain tax relief on incorporation, with the effect that no Capital Gains Tax (CGT) or Stamp Duty Land Tax (SDLT) becomes payable on the transfer. If you do not meet the conditions for these reliefs though, you could face a hefty tax bill, which could wipe out any benefit you do receive from the interest deductibility and the ability to just be taxed personally on the funds you need.

If you are a private landlord, and you would like to discuss your options further, please do not hesitate to contact Gemma Hedges on 023 8046 1259.