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Should I Incorporate My BTL Portfolio?

Stephen Fay FCA, specialist property accountant, comments

Many property investors are considering the option of incorporating their BTL portfolio to avoid the mortgage interest relief restrictions that are starting from tax year 2018 - as these new tax relief restrictions don't apply to companies. However, there are tax and finance challenges, which make the decision not as straightforward as many landlords believe.

Why should I think about incorporating my BTL portfolio?
The new mortgage interest relief restrictions - starting from tax year 2018 - will push many mortgaged portfolio landlords into the Higher Rate of tax, meaning tax is charged on pre-interest rental profits, with a flat 20% credit for mortgage costs deducted from the tax bill arising.  

This will mean high rates (typically 60-80%) of income tax for mortgage portfolio landlords, which could make the entire rental business unviable - or, more likely, so much less profitable AFTER tax that many landlords will simply not be willing to deal with all stresses & strains of running their portfolio.

By transferring the property portfolio into a company, all mortgage interest would become tax deductible, and therefore in some circumstances incorporation can be a suitable strategy.  

However, new dividend taxes from April 2017 mean that extracting income from a company is more expensive, and so generally only larger portfolios will benefit from incorporation, and especially where personal income requirements from the company are modest (since extracting every penny of company profits would negate much of the benefit of incorporation).

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