Owning a buy-to-let property portfolio in your own name means paying income tax on your rental profits. Income tax is charged at 20%, 40% and 45% bands depending on your level of income; so the more you make from your portfolio, the more you’ll be losing to the taxman.

That all changes if you’ve built up your property portfolio within an SPV limited company. Since the limited company owns the properties, the limited company pays the tax on the rental profits; but not under income tax rates.

Instead, limited companies pay corporation tax, which is currently at just 19%. What’s more, the amount you pay isn’t tied to your amount of rental income; you’ll only pay 19% tax no matter how much your portfolio brings in.

So, would you rather be paying 40% or even 45% tax on your rental profits, or just 19%? As you can see, owning property through an SPV company represents a huge tax saving.

But it gets better…

Mortgage Interest tax relief

You might be thinking, ‘but buy-to-let landlords already have mortgage interest tax relief, right?’

Well, they used to; but that all changed in 2017 when the Government began gradually phasing out mortgage interest tax relief for independent landlords. From April 2021, it’ll be gone completely; replaced with a measly 20% tax credit.

Again, this all changes if you own your buy-to-lets in an SPV company. Landlords who choose to encorporate their property investment activities under an SPV banner regain 100% mortgage interest tax relief; so all your mortgage interest payment costs can be deducted from your taxable income.

Inheritance tax, capital gains tax and stamp duty mitigation

Have you considered how you’ll pass your property investments onto your family after you’ve gone?

If you leave your portfolio in your will and the total value of your estate is above the £325,000 threshold, bad news; your loved ones will be hit with a 40% inheritance tax bill on everything above the £325,000 threshold.

That’s almost half of the value of your portfolio going straight to the taxman.

What’s the solution? You could transfer the portfolio to your family while you’re still around; but that could mean paying capital gains tax on the transfer at up to 28%; as well as stamp duty land tax fees on the property transaction.

Now, let’s look at the same scenario if your properties are held within an SPV. By transferring shares in the company to your loved ones before you pass on, you’ll pass ownership of your portfolio to them without incurring inheritance tax.

You might still have to pay capital gains tax, but there’s good news here too. Limited company SPVs only pay 20% CGT rather than 28%.

And since you’re free to set the cost of your limited company’s shares at zero, there’s also zero stamp duty to pay. Perfect!

So, plenty of SPV tax benefits to consider – but is an SPV right for you?

Take a look at our comprehensive guide to SPV limited company buy-to-let mortgages for all the advantages, considerations and tax benefits of SPV property investment – or get in touch with the SPV Mortgages team.