How does the mini budget affect you?
How does the mini budget affect you?

Time to Incorporate

With the cost of borrowing increasing with further rate increases on the horizon, there has never been a better time to Incorporate your property portfolio, and transfer your properties from sole or joint ownership to a private limited company.

Effect on Taxes?

If you are a basic rate tax payer, the increase in cost of borrowing could take you into higher rate, as the interest charges and other financial charges are no longer deductible for income tax purposes, instead you get a 20% tax credit. But there is a further catch, you need to have sufficient income tax liability to recoup your tax relief on your mortgage interest. So in scenario where you having void periods or modernising/ maintenaing your property you could end up with unrelieved mortgage interest costs.

If you are a higher rate tax payer, the extra cost of borrowing would increase your taxes significantly.

Then there is the cost of national insurance. This is a tax. For several years, the government has been contemplating to charge national insurance on all property income as any other self employed income from a trade or profession. The current rate of national insurance is 13.25%, and is chargeable on all income from trade or profession in excess of £2,500 up to £50,200, thereafter 3.25% on the excess.

If your properties were in an incorporated company, all your mortgage interest costs will be automatically relieved as a business expense, together with all other costs and even salaries, and if your company makes a loss, this can be carried forward indefinitely to period where you make sufficient profits to cover the losses from previous periods.

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