We are delighted to welcome Ben Hawkes of LaingRose to speak at our March PIM.
Do you have a residential property portfolio with profitability about to be slashed by the new mortgage interest relief restrictions?
But you can’t afford to incorporate, due to expensive refinancing costs and higher stamp duty.
Ben can show you a solution which enables you to restructure your residential portfolio using Trusts.
Ben is a specialist in Trust planning and SDLT planning for landlords and he will be explaining exactly how a trust can work for you.
Currently landlords pay tax on their profits according to their income tax band, but Clause 24 of Finance Act 2015 will stop private landlords from using 100% of their mortgage interest to offset their tax bill. It will begin to take effect from April 2017 – next week! The changes are being phased in over the next 4 years.
How will this affect you? Let’s take an example; if you have a Rent Roll of £125,000 and Mortgage Costs of £50,000 your effective rate of tax will be 52%. That is a tax increase of 173%. In more general terms this means:
· A possible tax bill even if a private property business makes a loss
· A tax on revenue NOT profit
· A possible tax bill equal to 100% of profit
· An unplanned move from the Basic Rate to Higher Rate Tax Band
· A sustainable business becoming an unsustainable business.
Ultimately if you are a higher-rate taxpayer, the new tax will obliterate your returns if your mortgage interest is 75% or more of your rental income. Some current basic-rate taxpayers will also be hit, because the change will push them into the higher-rate tax bracket.
Plus, landlords are already dealing with the 3% rise in stamp duty for buy to let property which came into effect last year – and adds extra costs if you want to transfer your portfolio to a company.
What should you do? The informed view is that you should transfer to a Limited Company – because you can then continue to offset mortgage interest and pay only 20% Corporation Tax.
But, there are significant problems with a Limited Company:
- The transfer will be treated as a disposal for Capital Gains Tax unless properly structured. You will pay 18% or 28% of the gain you have made. The gain will be calculated at Market Value. On a gain on a property of £100,000 at 28% you will pay £28,000.
- You will also pay Stamp Duty Land Tax on the transfer unless properly structured. On an average value London Property (£600,625) this will cost £38,050 per property.
- You will pay Annual Tax of Enveloped Dwellings (ATED). Recent rules demand that property companies pay £3,500 per annum ATED on a property valued at £500,000 and over.
- You will not qualify for Business Relief for Inheritance Tax. Gifts of assets held in a property company will be subject to Inheritance Tax of 40%. A property with equity of £100,000 will cost £40,000 in IHT to pass on.
So, the total cost could be £109,500 per property – and we have not yet mentioned the inconvenience and risk of re-mortgaging.
Can this really be your only option? No, the good news is that there is a solution – you can restructure your property portfolio using trusts. Ben will be revealing exactly how this can work for you.
Ben’s talk gives essential advice for all property investors. If you are starting out you will discover how to structure your portfolio efficiently, from the outset – so you don’t lose all your profits to the tax man.
For existing landlords and investors looking to protect your income and restructure your existing portfolio, without paying unnecessary tax, this talk could be the most valuable one you come to all year – do make sure you join us on 30 March 2017 at Holiday Inn, Bristol City Centre, 6-9 pm.
For more info and to reserve your place CLICK BELOW!
We look forward to seeing you there.
The team at Property Options
PS Ben is a change from our original speaker, but he is essentially covering the same topic – and more – so if you’ve already booked, don’t worry, you’ll now be getting even more valuable advice.