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There are many topical factors at the moment that are bringing uncertainty into the housing market, particularly for investors. Political and economic instability such as Brexit and the recent stepping down of Theresa May is on everybody’s mind, as is legislative changes such as Section 24.

If you are a current landlord or looking into investing in property you have probably heard countless times about the affect that legislative changes such as Section 24 can have on the profitability of general property investment. However, it is not as black and white as this and there are also other factors which can help an investor if this particular law applies to you.

Section 24 applies to any landlord who either;

  • Are Landlords who are UK residents with residential rental properties, regardless of location
  • Non-UK resident landlord with residential rentals based in the UK
  • Partnerships and Trusts with residential rental properties
  • However, it most specifically affects higher rate and additional rate taxpayers. The reason for this is because once tax has been calculated, landlords will be able to offset 20 % of finance charges against the tax due and as standard rate taxpayers will be charged 20% tax on the mortgage interest this equates to no change. On the other hand, Buy-to-let landlords in the 40-45% tax bracket will pay 20-25% more tax.

This leads on to the conversation around how to counteract this change. There are a couple of financial reasons why you might choose to own property as a company rather than an individual.

Firstly, the way you are taxed on the rental income will differ slightly. As stated above, if you own a property as an individual, the money you get from rent will be taxed as income tax, alongside your other earnings. But, if you choose to invest a property in your limited company, the profit you make will be taxed at Corporation Tax instead, which is currently 19% (17% in April 2020).

Company structures also allow flexibility within being able to leave the profit within your company to use for a further investment are use as a Directors loan. Additionally, profits can be paid though dividends, or a salary and shareholders can be added to your company which can help from an estate planning point of view (inheriting the properties).

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