Buy-to-let investors – how best to save on the tax bill

Confidence in the Edinburgh buy-to-let market continues to remain strong with the capital being voted best city in the UK for the third year running. Edinburgh is a vibrant city, full of professionals, students and of course tourists from all around the world, many of which need to rent properties making it an ideal location for buy-to-let investors.

Investments in property can often be preferable to pensions or investing in stocks and shares. When investing in property there are ways to increase your investment further and limit your tax bill. You don’t have to own a vast portfolio of properties to benefit from a corporate structure, and setting up a company could limit your tax bill and make it easier to pass your investments to children or grandchildren provided you do not have a need for the income at this time. Specialist mortgages are also available for companies.

The main tax benefit of holding properties within a company is that the rental profits are taxed at 19% if they are less than £300,000 a year (whereas if you own buy-to-let properties personally the rental profits are taxed at your personal tax rate, which could be as high as 45%, depending on your other income). If you remove the profits from the Company, you will still end up paying at your higher rate. From April 2017 small buy-to-let investors will be hit by gradual tax changes set to slash their profits and increase their tax bill. 

As a landlord, you will have obligations to register with the Landlord Registration service and to comply with regulations on gas safety, electrical compliance certificates etc, but a good letting agent will be able to guide you through the process. We can recommend some excellent agents to help you with this process and with finding and assessing tenants and managing your portfolio.

Setting up a business is not a simple process, and there are pros and cons of the different options. We act for a considerable number of landlord clients and have access to specialist advice. So, if you are thinking about investing in buy-to-let properties in Edinburgh, then please speak to McQueen Legal and we can refer you to one of our independent financial advisers for further advice on the financing. If you want to take advantage of our Property Finder Service then please contact Mary McQueen.

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