From the 1st April, those residing in England and Wales will have to pay an extra 3% surcharge on each stamp duty band for second properties/buy to let. See the table below for a breakdown...
|Property Value||Stamp Duty Rate For Owner Occupiers ||Stamp Duty Rate For Second Property/But To Let|
|Up to £40,000||Zero||Zero|
|The next £85,000 (the portion from £40,001 to £125,000) ||Zero||3%|
|The next £125,000 (the portion from £125,001 to £250,000)||2%||5%|
|The next £675,000 (the portion from £250,001 to £925,000)||5%||8%|
|The next £575,000 (the portion from £925,001 to £1.5m)||10%||13%|
|The remaining amount (the portion above £1.5m)||12%||15%|
Capital Gains Tax
From April 2019, BTL’s will have to pay any CGT due within 30 days of selling a property, rather than waiting till the end of the tax year. It’s important to remember when it comes to selling up, BTL can offset purchase costs against any eventual capital gains tax – and that includes stamp duty. So although there will be more to outlay initially, if a buy to let property eventually sells for a profit, you can claim stamp duty back later on capital gains tax.
However, like income tax, you can offset some of your expense against your capital tax bill. These include…
• Solicitors and conveyancing fees
• Estate agents fees.
• Expenses incurred when improving the property.
• Advertising the property for sale.
• Stamp duty.
• The use of limited companies.
From a purely financial perspective, there are three obvious reasons why you might want to hold property as a company rather than yourself.
1. Tax treatment of profits
If you own a property in your own name, the profits you make from renting it out will be added to your other earnings (such as from your job) and taxed as income tax. But if instead you hold it within a company, the profits will be liable for Corporation Tax instead.
The rate of Corporation Tax is currently 20% (if your profits are below £300,000), which means your tax liability is halved compared to if you’re paying income tax at a rate of 40% or higher.
You will still be taxed on the dividends if you take profits out of the company, but there’s flexibility as you can time your dividend pay outs for maximum tax-efficiency, or distribute them to family members who are only basic rate taxpayers – or just leave the profits rolling up within the company to buy the next property.
2. Tax treatment of mortgage interest
As of April 2020, mortgage interest will no longer be an allowable expense for individual property investors (they’ll claim a basic rate allowance instead) – but it will continue to be allowable for companies that hold property.
3. Opportunities to mitigate inheritance tax
With property held within a company, if you know how, you can pass the property on to your children without them having to pay any Inheritance Tax.
Buy to let mortgages are available for companies.
Many people think that you cannot get a buy to let mortgage for a limited company. The good news is that this is not the case. True, there are less providers compared to taking a buy to let mortgage in your own name but there are still enough to provide options for those who find company ownership of property attractive.
For more information about our investment service at Purplebricks, please email email@example.com or call 0121 296 4844.