Income tax relief on buy to let mortgage interest is being restricted but is it more tax efficient and financially better all round to operate your portfolio using a limited company?
The tax year 2016/17 was the last year that higher and additional rate income taxpaying landlords could claim tax relief on the costs incurred when taking on finance(ie buy to let mortgages), In the last tax year (2018/19) this was restricted to 50% of finance costs and in the current tax year 25% of finance costs.
If you’re a residential landlord, the main finance cost is the interest you pay on the buy to let mortgage but it may also include interest on loans to buy furnishings and any fees incurred when taking these mortgages and loans.
From April 2020, if you are a residential landlord and you own your rental property personally (ie not within a limited company), You will not be able to deduct the finance costs from your property income when calculating your taxable profit. Instead, you will receive a basic rate of tax reduction on the finance costs from your income tax liability.
An accountant will be able to tell you if it makes sense for you to make purchases of buy to let property through a limited company.
Keli Evans, Director at LJS Accounting Services, excels in taxation and statutory accounts. With a focus on strong client relationships, she leads a diverse portfolio, overseeing vital financial aspects like VAT, payroll, pensions, and taxation with a holistic and committed approach.