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All investors should have a goal. The chosen goal should lead to a strategy being formed.

All Investors and Landlords will have to tweak their strategy and react to changes to maximise profit.

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Discussing your personal investment strategy with other investors and the people working with investors, who gain a mass of rounded knowledge from very different investor viewpoints, can be the key to continuing to gain maximum profits by keeping your portfolio at the peak possible performance.

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Yes a lot of people do fear change, however change often results in opportunity. This is why the media driven information is not always enough for the astute investor who wants to find the optimum methods employed by successful investors that are not as widely publicised.

This adaptation process is often started with the basics. For example, it is advisable to decide if there will be a need for an exit plan. If there should be one, when and what that might be. A poignant topic at present is considerations such as Capital Gains Tax planning and Inheritance Tax Planning alongside personal ongoing Taxation. These points are best addresses at the outset, prior to the point of a purchase, as this is when you can minimise the costs when they occur, be that at the beginning, during or at the end of the investment. For younger and older investors alike, it is important for you to have a will to avoid unwanted disputes and to utilise any tax breaks available.


Prior to any investment property acquisition, because it is easier to decide before than change it after, it is advisable to consider single or joint ownership. For example if your partner is not working, you may wish to arrange joint ownership to utilise their maximum tax free income allowance. (currently £11,000p.a.)

  • Those with an equal ownership interest in a property are described as ‘Joint Tenants’ and the rental income would normally be split 50/50 for tax calculation.
  • Those that set things out with identifiable shares are described as ‘Tenants in Common’ and the rental income would be split as per the share description e.g. split 85/15. Spouses would need to complete a declaration of such on HMRC Form 17 to ensure tax is not automatically calculated on an equal share basis.


The government appears to be looking to encourage all BTL property owners to move to a corporate structure with the two biggest changes to taxation in the property investment arena being announced and rolled out between April this year, with the additional 3% SDLT on second homes and residential BTL purchases, and the tax relief changes being introduced in phases over the next four years. This makes the most common question ‘Will I save more tax if I hold property in a LTD company or personally?’

Unfortunately there is not a definitive answer due to the complexity of factors such as personal circumstances, funding options, time to hold the investments, future changes to legislation etc. To understand more about this read on.

     What is a LTD Company?

A company holds a separate legal status to its owners. A company can be owned by one or more individuals who share the profits. The profits are usually paid in the form of dividends.

     How is rental income taxed in a LTD company?

Companies pay Corporation Tax not Income Tax. Corporation Tax is currently 20%. This is half that of a higher rate (40%) Income Tax payer. The first £5,000 of Dividend payments is a tax free allowance. When dividends are received within the basic rate tax band there will be an income tax rate of 7.5%. For higher rate taxpayers they will pay the equivalent of 32.5% of the dividends received. If your total income breaches the £150,000 mark 38.1% is the rate. This means you could save upto 7.5% tax holding your portfolio inside a LTD Company.


Any profit made on a property, other than a main residence, is subject to CGT. Companies do not pay CGT but instead they pay CT (Corporation Tax) meaning if a LTD Co. sells a property the capital gain is added to the rental profit in that year and the LTD Co. pays 20% CT compared to 18% for a basic rate taxpayer and 28% for a high rate taxpayer. As there are some reliefs available to individuals in many cases investors could be worse off in a LTD Co. structure when looking to trade. It is strongly recommended you seek specialist tax advice from an accountant with experience with property investors. This type of Tax advisor can help you through the ATED (Annual Tax on Envelope Dwellings) rules too.

Restriction of Mortgage Interest Relief

The changes announced in the summer last year will affect residential landlords receiving rent from 6th April 2017 as follows

2016-2017:      Finance costs will be deducted from rental profits as currently allowed.

2017-2018:      75% of finance costs will be deducted from rental income, 25% being available as a basic rate tax deduction.

2018-2019:      50% of finance costs will be deducted from rental income, 50% being available as a basic rate tax deduction.

2019-2020:      25% of finance costs will be deducted from rental income, 75% being available as a basic rate tax deduction.

2020-2021:      All finance costs will be given as a basic rate tax deduction.

Individuals will be able to claim basic rate tax reduction from their income tax liability on the portion of finance costs not deducted in calculating rental profit, and excess finance costs may be carried forward to following years, if the tax relief has been limited to 20% of the profits in a business year.

Allowable Expenses

Careful steps of consideration and calculation over expenses must be taken. Some expenses are deductable form rent received however others will be seen as capital considerations that relief maybe given on the eventual sale of the property. Ongoing expenses are those incurred in generating income.

Water rates:          If you pay these and not the tenant.

Insurances:           All insurances in connection with the property.

Council Tax:          If you are liable for council tax it could be included.

Legal:                    Any legal costs associated with the tenancy are allowable.

Maintenance:        Like for Like repairs are permitted but vast improvements will not be e.g. wooden windows being replaced by UPVC maybe included but a shower upgraded to a sauna and Jacuzzi style spa bathroom is not likely to be acceptable.

Letting costs:         Any agent or management fees are allowable.

Wear and Tear:     There is no longer a notional allowance but the actual cost of replacements is included.

Owners Expenses: An accountant will be able to assist you with amounts related to visiting the property i.e. vehicle costs, fuel etc

Advertising:           Typically this is part of the agents costs but landlords that advertise and mange their own property will have advertising costs included.



How can I assess the impact of the taxation changes that are coming?

If you have mortgages / loans / finance it is important that you assess your situation as soon as possible. Your accountant or a specialist property focussed accountant should assess the potential increase to your tax liability.

Should I put my properties into a LTD company?

There are circumstances when purchasing through a LTD company can be beneficial. Each would need careful consideration from a property focused accountant with a good understanding of corporate structures and tax efficient methods of realising profits personally. The impending tax changes from now to 2020 do make the company structure look more and more attractive into the future. Contact, at the earliest possible time, a specialist property focussed accountant and discuss your personal circumstances. Ask them what alternatives to a LTD company may be beneficial for your circumstances.

How do I ensure the taxation changes do not affect my income?

You cannot, but, you can plan to be efficient within the new calculations or you can plan to be efficient, calculate what the financial difference will be and once known a property consultant can assist growing your portfolio to see the same income result or an even better one in the shortest timescale possible.

How can I grow a portfolio quickly and efficiently?

Many investors start out thinking that to raise capital for deposits for further acquisitions they have to sell property in order to realise the capital required to add to their portfolio. Many investors choose not to subject their position to Capital Gains Tax and sales costs by choosing to use equity as deposits against new purchases. This promotes growth especially quickly when the properties are acquired below the current market value creating additional equity profit at the point of purchase. Speaking to an accountant and a property consultant can help you create a strategy and find the properties required to grow your portfolio in the best possible way.

So now that you have an overview, what should you do?

  1. If you have not spoken to your Earnest Knight consultant in the last few weeks call them to discuss your situation and aspirations.
  2. Then discuss your tax, management and exit plans with and accountant.
  3. Then call your Earnest Knight consultant to discuss the future further with the accountants suggested structures in mind.
  4. Put the plan discussed with your accountant and consultant into action immediately.
  5. If you do not have one already, create a will.

An informed investor is a successful investor!

For the current research results and the best choice of property investments, as selected by property buyers, in the UK market do not hesitate to contact your Earnest Knight Consultant today

Information is free and can only be of benefit to you

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