Tax Gurus Can Cost Landlords More Than They Save

Like all good business people, landlords always look at ways to maximise their earnings, but recent tax changes have left many concerned about their profits. 

Between April 2017 and April 2019, both the way property profits are calculated and the amount of tax they will pay change as the government phases out mortgage interest relief for high earners. 

Accountants and tax advisers have come up with lots of different ways of adapting property businesses to cope with the changes. 

The problem is these gurus tend to sell their services on how much tax is saved rather than how much they cost. 

Most of the solutions involve landlords parting with large sums of cash – either to their adviser or mortgage company to repay the debt and remove the problem, which is OK if they have the money in the bank. 

Some solutions don’t deliver, while others cost the earth. 

The touchstone solution peddled by some gurus is a beneficial company interest trust. Setting this trust up could save you tax. 

The trust cleverly deals with remortgaging and capital gains tax issues that stop many landlords form incorporating their businesses, but requires costly fees for tax and legal experts to work their magic. 

Establishing and running the trust can cost thousands of pounds and make a dent in any tax savings. 

Although landlords with portfolios running into tens of properties may find this trust an advantage, for most landlords with one or two homes they let out, the cost outweighs the return. 

That’s why running a cost-benefit analysis is always worthwhile when a guru comes up with a tax saving solution. 

Don’t forget to factor in the cost of the solution and remember that no one has a ‘unique tax saving opportunity’. If one adviser has a resolution to peddle, so does everyone else and the reason they don’t may be worth considering before signing on the dotted line.