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Property Ownership Companies

28 December 2019

Same-Day Company FormationDue to tax changes announced in previous budgets, it is estimated that over 400,000 basic rate tax paying landlords moved into higher tax brackets. As a result, Property Ownership Companies have increased.  HMRC have restricted the tax relief that is currently given to landlords on the finance costs from residential property to basic rate.

Property Ownership Costs

The most common cost included relates to mortgage interest on borrowing.  The change has been implemented over a 4 year period on a gradual basis.   The table below shows the impact of these changes.

Tax year Percentage of costs deducted from profits Percentage of costs available as a basic rate deduction
2017/18 75% 25%
2018/19 50% 50%
2019/20 25% 75%
2020/21 0% 100%

Many landlords that own property personally where mortgages are based on interest only will find themselves with additional tax burdons that the property income will not provide for and therefore the cashflow impact of this needs to be considered in advance.  Based on an average property the tax liability could increase by £3,600 per property.

There are alternative structures that can be used to mitigate this additional tax charge and a limited company owning the property is an option.  We believe that the number of Property Ownership companies that will be incorporated to own residential property will increase over the next two to three years.

As the tax consequences will differ from individual to individual it is very important to get professional advice before making any changes in this respect.

If you are interested in finding out more about the tax changes please contact us and we can put you in touch with a Tax Specialist to assist.

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