Why Form a Limited Company?
You may be wondering why we want to help you with Limited Company Formation.
Well, forming a Limited Company has valuable benefits to landlords, including mitigating the impact of Section 24 mortgage interest relief cap and reduced tax rates.
This trend has rapidly increased since new rules and regulations came into place in 2017. According to brokers, limited companies account for almost 80% of new mortgage applications!
But why?
Changes to the taxation of rental income brought about in 2017 (Section 24 Mortgage Relief), have affected the tax bills of buy-to-let landlords. Rather than suffering a potentially disastrous blow to your profit, the simple and cost effective solution is to set up a limited company to hold your property.
Our Limited Company Formation service enables you to reap the rewards of our many years of expertise and save yourself hundreds of pounds a year. It can be done in as little as a day, for a modest setup fee.
Why would I form a Limited Company?
- Section 24 Mortgage Interest Relief
Mortgage interest is no longer an ‘allowable expense’ for individuals. A Basic Rate Allowance will be claimed instead. This is causing many investors to be pushed into a higher tax band. However, limited companies continue to operate under the rule that mortgage interest is considered an allowable expense so will remain in the original tax band.
- Tax treatment of Profits
Due to the new rules, all profits you make from renting out a property as an individual will be added to any other income you receive. This will be taxed as income tax and may push you up into the higher tax bracket and you will be taxed 40%! Alternatively, limited companies are charged Corporation Tax which is 19%, less than half of this!
How do I set up a Limited Company?
The information on the internet and Companies House is detailed and complex, plus, there are many costly pit-falls you will want to avoid. That is why we’ve done the hard work for you. Setting up a limited company can be simple and cost effective with the help of The Property Shop. Most of the time we can have you set up on the same day for a modest fee to cover the cost of set up.
Still not sure? For more information about what Limited Company Formation entails, check out our 6 Simple steps to Limited Company Formation.
Why doesn’t everyone form a Limited Company?
As mentioned, there are many costly pit-falls you will want to avoid when it comes to limited company formation. One of which is that many people don’t know that buy-to-let mortgage rates can increase when a property is transferred from personal ownership to a limited company. Doing the maths and weighing up the benefit of the tax relief against the increased mortgage interest rates is essential before committing to limited company formation.
You may also find that what you will save doesn’t justify the increased accountancy costs, hassle, and paperwork. Only you can decide if forming a limited company is right for you, but we can certainly help you make an informed decision with your best interests at heart.
Find out if forming your very own limited company could save you £100s per year by contacting us on 01273 915400 or info@tpsb.co.uk.
