Acting for over several hundred property investors, ranging from private landlords to corporate owners of high value residential and commercial portfolios, our team has extensive experience in this area.

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Landlord accountants and tax advisers

Landlords face a range of accountancy and tax issues which have never been more complex than now to navigate.  In recent years, many investors have seen steady growth in both property values and rental income while enjoying a relatively attractive tax relief on financing costs.

However, recent changes to the tax system are now prompting property investors to seriously reconsider how to structure their businesses in order to avoid potentially costly mistakes in the future.

In response to the introduction of a number of changes to the tax system, many landlords are moving their properties into a company and purchasing any additions to their portfolio through the same company.  While this may be the best course of action for some, the options need to be evaluated on an individual basis.

From 6 April 2017, individuals have only been allowed to deduct 75% of their borrowing costs, including interest, incurred in running their lettings business.  The percentage of disallowed interest will increase by 25% every year until 6 April 2020, from this point onwards all interest paid by an individual landlord will be disallowed.  Instead, they will receive a tax credit equivalent to 20% of the disallowed interest to offset against their income tax liability.

How will the changes to tax relief affect you?

Highly geared investors could find they are paying tax on non-existent profits but there are some actions that might be taken to mitigate this.

For married couples and those in a civil partnership, joint ownership might be considered.  This is particularly attractive if one of the owners is not fully utilising their personal allowance and basic rate income tax band.

For those already affected, if additional properties are acquired, it might be more tax efficient to buy them in a company.

The interest relief restrictions do not apply to furnished holiday lettings and some property investors are switching their buy to lets to take advantage of this.  To qualify, properties must be available for letting for at least 210 days and actually let for 105 days but no more than 31 days to the same occupants in a tax year.  See our guide Furnished holiday lettings - a tax-friendly alternative?

Sometimes it is possible to rearrange borrowings, particularly if the owners are involved in other businesses that have borrowings.

How will this affect you if you own the property through a company?

The restriction of the deductibility of finance costs will not apply to corporate landlords.  A company can continue to deduct all the interest and finance costs in calculating the taxable profits of its property investment business.

However, a company may find it has to pay a higher rate of interest or have more difficulty securing mortgages on its rental properties.  Lenders could insist that the directors of the company provide personal guarantees before advancing loans to the company.

The advantages of investing in property through a limited company largely depend on how long you intend to hold the property for.  If you are owning the property for the long term, the main advantages of investing through a company may include:

Tax on disposal - companies pay corporation tax which is less than the higher rate of personal capital gains tax.
Roll-up of profits - the profits made by the property can be retained by the company (after corporation tax) until extraction at a later date, such as retirement.
Disposal as an active property rental business - the company can be sold as an active business meaning any gain made is liable to corporation tax, which is more favourable than capital gains tax paid by an individual.
Succession planning - shares in the company can be passed on more easily than a share in a privately held investment property.

If you are investing in the short term additional considerations should be made.

Capital gains tax

A company may not offer the most tax efficient structure as the annual capital gains exemption allowance is not available for companies, the company will therefore pay corporation tax on all its net gains.

Changes to reporting and paying CGT from April 2020

From 6 April 2020 all UK residents disposing of UK residential property will need to submit a capital gains tax (CGT) return to HMRC within 30 days of the completion of the disposal, and a payment on account of the full calculated CGT liability will be payable within the same 30 day window.  Read about the changes here

Annual tax on enveloped dwellings

If you are investing in higher value UK residential property, annual tax on enveloped dwellings (ATED) will also need to be considered.  ATED was introduced as an anti-avoidance measure with the intention of making it less attractive to hold higher UK residential property indirectly through a company or other non-natural person.

It applies to any property acquired after 1 April 2013 with a market value of £500,001 or above (from 1 April 2016 or after).  This tax does not apply if the property is only let to third parties and there is no use by the shareholder or associated persons.

Moving to cash accounting

Until 2016/17 property landlords needed to complete their self assessment in accordance with the accruals basis, formerly known as generally accepted accounting practice (GAAP).

However, with the exception for certain property investors (ltd, llp, corporate firms and trustees of trusts) from 2017/18 private landlords may calculate and submit their self assessment on a cash accounting basis.

For further information

You can find out more about the financial implications of property investment for landlords in our latest factsheet.

How we can help

As specialist landlord accountants we provide a comprehensive range of services for property investors.  For more information visit our property accountants page.

If you are interested in becoming a client of Morris Crocker, please contact us on 023 9248 4356 or you can use the enquiry form at the top of this page.  

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Property Landlords Key Contact

Kevin Gilbert, Director

Kevin joined Morris Crocker in 1981 and throughout his career has specialised in the property development, investment and construction sectors. He acts for all sizes of businesses, from individuals through to public companies.  His particular interest and expertise is in tax mitigation.

T:023 9248 4356

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