Landlords Union Reveals How Its Members Net Profits Can Sky-Rocket By Switching Ownership StructureMake Text Bigger
Far too many landlords have been guilty of focusing on problems than solutions when it comes to optimising their rental profits.
In many cases, changing the ownership structure can prove to be far more effective than refinancing or increasing rent.
Mr Patel enjoys a £50,000 salary from his ‘day-job’. He also owns two properties which bring in £2,000 a month of rent. His mortgages cost one third of this and other expenses amount to another third. Over the year this leaves him with £8,000 of profit. However, in the current tax year he will be taxed on £10,000 of profit, £12,000 the year after, £14,000 the year after than and eventually £16,000 a year from the 2020/21 tax year onwards, such are the effects of the Government restrictions of claiming finance cost relief. He pays 40% tax on the first £8,000 and the equivalent of a further 20% of the additional fictional profit.
However, Mr Patel’s wife doesn’t work. Moving the properties into the name of his wife results in no tax being paid at all. They don’t even need to refinance because this can be achieved using Declarations of Trust. There is no CGT on transfers between spouses and as a result of minor changes to SDLT legislation in the Autumn Budget 2017 there is now no SDLT either, regardless of whether properties are mortgaged.
The tax savings are as follows:-
The cost of the advice is £400 and this case implementation cost a further £600, so £1,000 in total. I trust you will agree that’s a ‘no-brainer’?
Please Log-In OR Become a member to reply to comments or subscribe to new comment notifications.