How we saved a Palmers Green landlord £5,400 a year with incorporation
Client M is a higher-rate taxpayer working full-time in finance who has built a portfolio of four buy-to-let flats around Palmers Green and Bowes Park over the last fifteen years. The properties were all owned personally and Section 24 (which restricts mortgage interest relief to a 20% tax credit) was hitting his tax bill hard, with around £26,000 of mortgage interest annually being treated as non-deductible for higher-rate purposes.
We modelled three scenarios over a ten-year hold: stay personal, incorporate using incorporation relief to roll over capital gains, or sell some properties and incorporate the rest. Incorporation made sense because the portfolio was profitable enough to justify the costs and the SDLT and CGT consequences could be deferred through incorporation relief (which is available where the property business meets the partnership/business test). We set up the SPV company, transferred the properties using the incorporation relief, and restructured the financing through buy-to-let limited company mortgages.