Since the government phased out mortgage interest tax relief for individual landlords, the BTL landscape has shifted dramatically.
Since the government phased out mortgage interest tax relief for individual landlords (Section 24), the BTL landscape has shifted dramatically. Today, a significant majority of new BTL purchases are made through Special Purpose Vehicle (SPV) Limited Companies. But is it the right move for you?
Personal Name vs Limited Company
When you hold property in your personal name, rental profits are taxed at your marginal income tax rate, which can be as high as 40% or 45%. Furthermore, you cannot deduct your mortgage interest as an expense, heavily impacting your net cash flow.
Conversely, holding property in an SPV Limited Company means profits are subject to Corporation Tax (currently between 19% and 25%), which is often much lower. More importantly, limited companies can deduct 100% of their mortgage interest as a business expense.
Things to Consider
However, corporate structures aren’t perfect for everyone. Mortgage interest rates for limited companies are typically slightly higher, and you will incur accounting costs to run the company. Furthermore, transferring existing personally-owned properties into a limited company can trigger Capital Gains Tax and Stamp Duty.
Always consult a tax adviser, but for those scaling a new portfolio, the limited company route is currently the industry gold standard.