BLOG: What are the pros and cons of investing in property via a Limited Company?

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A recent survey from Paragon Bank suggested that the number of landlords planning to set up a Limited Company to purchase a buy-to-let property reached 62% in the second quarter of 2022, up from 50% in the first quarter of the year.

According to the research, this is the highest proportion of landlords in the last three years that have indicated they are moving to a Limited Company.

Although some landlords have been investing in buy-to-let via a company for many years, the trend has increased rapidly since April 2017, when the government decided to phase in changes to the rules on how mortgage interest was taxed.

By April 2021, none of the interest paid on buy-to-let mortgages could be deducted from rental income; instead, investors filing Self Assessment tax returns would apply a relief of 20% to the cost of mortgage interest and other finance costs. This typically penalised higher-rate tax payers who could, in the past, have claimed 40% or more tax relief.

Attractive option?

Meanwhile, those that invest through a Limited Company are still allowed to deduct finance costs from their rental profits so, on the surface, that may seem a more attractive option for landlords.

However, it’s important to be aware that this is not straightforward and there are a number of factors that can affect whether such a move would be beneficial overall to you. So, if you’re considering making new investments via a Limited Company and/or transferring the ownership of existing buy-to-lets, you will need expert advice.

For any professional to be able to advise you, it’s important that they understand both your own personal financial situation and also your long-term property investment objectives.

For instance, are you looking to invest for pension income? Do you plan to pass on your portfolio to your children? Only then can all the pros and cons be properly taken into consideration, to help assess whether investing via a Limited Company is the right thing for you.

The pros

• You can deduct all your finance costs from the rental income.
• Typically, you pay a lower tax via the company, versus rates of personal income tax.
• Transferring ownership of a property or portfolio can be easily done via reallocation of shares, rather than changing the actual ownership of the property.
• Any profit you make can be kept in the company until you need it, rather than having to be declared in the year that you personally earn the income from buy to let. If you’re looking for income when you retire, drawing down dividends as and when you need may be a better option for you.  
• You may be able to save money when selling a property via a Limited Company rather than as an individual.  
• It can improve your profit and loss balance, as Limited Companies have to carefully account for every expense, which you may not be doing if you investing as an individual.
• If you wish to pass on your portfolio to your children, making them shareholders or a Company Director can be much more cost-effective than them inheriting property.

The cons

• You can’t simply transfer a property from your own ownership to a company without incurring costs such as Stamp Duty charges (Land Transaction Tax in Wales; Land and Buildings Transaction Tax in Scotland).       
• Financing via a commercial mortgage may cost more than financing a buy-to-let as an individual and you may have to pay higher fees as well. On top of this, you’re likely to have to pay for your Limited Company bank account, which currently may be free of charge.
• You need to calculate whether the overall amount of tax you pay via a company will be less, or at least no more, than the amount you pay investing in your own name. For instance, with a Limited Company, you will pay Corporation Tax, tax on dividends and will lose your personal allowances and exemptions. 
• You will need expert advice to understand the most tax-efficient way for you to set up a Limited Company, how to manage your funds via a company, your ongoing accounting and filling in tax returns differently. So you may incur higher ongoing costs if you need to employ an accountant to make sure you produce accounts according to government rules and regulations.

If you haven’t already, it’s worth finding out if investing in buy-to-let via a Limited Company could be right for you. We’ve partnered with GetGround, who have helped over 10,000 property investors set up their own Limited Companies and their experts can work with you to discover whether it might be worthwhile for you to make the switch.

If you’re keen to find out more, do contact your local Leaders branch and they will put you in direct touch with the experts at GetGround.

View Full Article: BLOG: What are the pros and cons of investing in property via a Limited Company?

Tenants happy to pay 13% rent premium for green homes, says big landlord

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Renters are willing to pay a 13% premium for a low carbon property, according to new research from Legal & General.

Its survey found that buyers would fork out 10.5% more, with all consumers now rating homes that have energy efficient, sustainable features as more important than the size of the property. There has also been a 34% rise in searches for eco-friendly homes.

Almost two-thirds (62%) see more green investment in housing as an attractive or very attractive option to address the cost-of-living crisis. When asked why they would buy or rent a low-carbon home, 65% of those surveyed chose environmental factors such as reducing their carbon footprint or helping to prevent climate change, while 37% prioritised the cost savings from cheaper energy bills.

Legal & General says the figures indicate that greener residential buildings could generate higher purchase and rental premiums, which would represent a major turning point in the way residential housing is valued in the future.

Material difference

“Climate change and energy efficiency have risen right up the agenda for many people when choosing a home,” says John Alker, head of sustainability.

“With buyers and renters prepared to pay a 10.5% and 13% premium respectively, energy efficiency and sustainability in homes make a material difference to the consumer. This research helps cement the business case for investors and developers to invest in low carbon homes.

“It also shows that clarity is key when it comes to low carbon and energy efficiency. Energy Performance Certificates are not well understood – they need reforming to better reflect real world energy consumption and to help incentivise adoption of low-carbon technology.”

Read more about EPC upgrade costs.

View Full Article: Tenants happy to pay 13% rent premium for green homes, says big landlord

TONIGHT: ITV News to investigate huge problems caused by lack of stock in PRS

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ITV News is to highlight the problems facing the private rented sector tonight, including items during its 6pm and 10pm Evening News bulletins.

Reporter Dan Hewitt (pictured above) is set to lift the lid on the challenges facing landlords and tenants, including how the Government’s Section 24 tax changes and the looming Renters Reform Act measures are reducing the amount of stock and driving up rents.

The bulletins will also include an interview with Landlord Action’s Paul Shamplina in London.

This included visits to two properties where tenants faced eviction in Ilford and Barnet; both being served Section 8 notices.

One had built up rent arrears of £17,000 after it took the landlords months to get their possession order via the courts.

“During the interview I highlighted to Dan that, during my 30 years spent working in the private rented sector, and 22 years running Landlord Action, I’ve never seen such a severe crisis of rental supply in the market,” he says.

“We are seeing an unprecedented number of landlords leaving the sector and serving Section 21 notices to enable them to sell their properties – many small landlords are simply throwing in the towel.”

Shamplina (pictured with Hewitt) says this is due to three drivers; the Section 24 changes to tax relief on mortgage interest, the hike in interest rates brought about by Kwarteng’s mini budget, and the extra regulation expected in the Renters Reform Bill next year.

“As I said on camera to Dan, the biggest losers from all this are tenants many of whom are now finding that huge competition – sometimes up to 40 applicants – for a reduced number of rented properties means higher rents.

“And it’s not going to get better – next year I predict that evictions next year will eclipse those during 2019 before Covid struck – so possibly more than 120,000, although this will include more mortgage evictions as the recession bites as well as landlords exiting the market.”

Watch the ITV news team in action

BTS filming with our @PaulShamplina and @DanielHewittITV Watch the full coverage on tonight’s @itvnews programme 6:30pm, highlighting the current #rentalstock #crisis, #costofliving and #landlords selling up and exiting the sector. https://t.co/nKhxr5J6wg

— Landlord Action (@LandlordAction) November 30, 2022

View Full Article: TONIGHT: ITV News to investigate huge problems caused by lack of stock in PRS

How much landlords will pay under new CGT rules revealed

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Changes to capital gains tax (CGT) announced in the recent Autumn Statement will see the average landlord pay up to £1,764 more if they exit the BTL sector in the 2023-24 tax year, research reveals.

That’s according to the London lettings and estate agent

The post How much landlords will pay under new CGT rules revealed appeared first on Property118.

View Full Article: How much landlords will pay under new CGT rules revealed

Rents will continue rising as landlords ‘withdraw’

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A lack of rental stock because landlords are leaving the PRS and continued tenant demand will continue pushing up rents, researchers reveal.

The data from TwentyEA also highlight that the average asking price for rent across the UK was sitting at £1,605 per month in Q3 2022.

The post Rents will continue rising as landlords ‘withdraw’ appeared first on Property118.

View Full Article: Rents will continue rising as landlords ‘withdraw’