Private landlords might be faced with losses on their rental properties following the Government’s decision to cut tax relief on buy to let properties. By turning their rental activities into a business, landlords may be able to prevent losses.
Analysis suggests that if a private landlord transfers one or more properties into a limited liability company, the total tax rate can be reduced because the company is paying tax on profit and not income. Other taxes such as stamp duty and capital gains tax could affect profits from a rental business, especially for a landlord with only a handful of properties.
When the company finally comes to sell, capital gains tax is wildly affected and dividend the profit to the owner at 49pc compared to 28pc for a private landlord. But at least you know what your effective rate of tax is and if you are reliant on the income rather than the appreciation of price, it may be a hit worth taking.
Although incorporating your business helps you guarantee your monthly tax bill, it is not a magic solution. Tax is only one consideration when forming a company.