From 6 April 2017 new rules came into effect which restrict the tax relief available to individuals who pay interest on mortgages (and related finance costs) used to buy their residential let property.
These measures apply for income tax purposes only and companies are specifically excluded.
This has led to many considering the benefits of incorporating their property letting business. The main benefits of incorporation are that a company now pays tax at only 19% on rental profits and a company is not subject to the higher rate interest relief restrictions which apply to individuals. Incorporation can therefore result in significant long term tax savings for investors.
There are, as you would expect, both upsides and downsides to incorporating a property letting enterprise.
When a property portfolio is transferred to a company, the owner is effectively selling their property to the company. This can result in Capital Gains Tax implications for the owner and Stamp Duty Land Tax charges for the company. The charges to incorporate, accompanied with the refinancing costs, can outweigh the tax savings available through company ownership.
Anybody considering an incorporation is strongly advised to seek bespoke advice - what works for one does not necessarily work for everyone!