Individual landlords will see their tax bills increase significantly from 2017/18, due to the restriction of interest and finance costs as deductions from residential property income.
There are tactics to discuss with the landlord for avoiding paying tax on more than 100% of net income. The choices are available can be:
- Reduce the property related borrowings from existing resources;
- Sell part of the property portfolio; or
- Change the business structure to invest in commercial buildings or furnished holiday lettings, neither of which are subject to the restriction of interest deductions.
Where the properties are already held within a company there will be no interest restriction.
If there are properties carrying low gains those could be transferred gradually, perhaps covering the capital gains with the taxpayer’s annual exemption each year.
Entrepreneurs’ relief, business asset roll-over relief and hold-over relief for gifts can’t be used for gains made within a property letting business, as letting is not regarded as a “trading business”.
However, incorporation relief may be available if the entire property lettings business is transferred to the company in one go.
There will also be charges such as stamp duty to pay on the transfer.
Landlords may soon be incorporating companies to protect their property portfolio.