Higher tax bracket

[someonenew]

I will be a brand new landlord soon and wasn't sure if what I'm doing is correct (best for tax reasons)

I have two properties

1) Bought Feb 2017 (£185,000 24% equity) residential for me to live in
2) Bought May 2019 (£150,000 25% equity) buy to let

The buy to let has immediately been snapped up at £1100 a month starting 1st July to students for 12 months.
I'm also getting married in 2 weeks and my fiance bought a property last year

3) Fiance bought Dec 2018 (£175,000 10% equity)

The goal is to change my residential to a buy to let very soon, it will easily be let out for £1,250 a month.

Now I earn £65,000 a year, I'm unsure as to what the best route is for me tax wise. Am I to just pay 40% on everything or is there another option?

[jpkeates]

Does your fiance earn the same (or more)?

The most tax-efficient outcome is likely to be to manage the properties through a company, but the costs of moving from where you are now to that position are quite high (but one off).

It might be worthwhile talking and working it through with an accountant, because there are lots of things to factor in.
It wasn't worth it in my case, but I don't have a high starting point for income, so the ongoing benefit was lower (and limited by my age).

[someonenew]

My fiance earns £35,000 so she's not too far from the bracket but we do intend on having children pretty early on.

I've never talked to anyone about transferring it over to a company, any ideas how difficult it is. I've just paid £5,000 on stamp duty for this property and have a feeling I'll have to pay it again to transfer.

Do you have any sites, calculations for working out if it's worthwhile or not. I'm unsure as to what all the fees are.

[jpkeates]

My fiance earns £35,000 so she's not too far from the bracket but we do intend on having children pretty early on.

When you are married, you can organise your tax affairs to suit your new situation - finding a good local accountant might be a sensible first step. Or a family solicitor (because you want your wills to be sympathetic and you might want to change how the property is owned.)
But SDLT will be an issue as will the mortgages.

I've never talked to anyone about transferring it over to a company, any ideas how difficult it is. I've just paid £5,000 on stamp duty for this property and have a feeling I'll have to pay it again to transfer.

While there will be SDLT, the company will have to pay it, and it's a business expense, so the actual "cost" would simply be the months of rent required to pay it off. For you, SDLT is a capital expense linked with the purchase of the property and allowable against CGT, for the business its an operating cost, because any capital gain is income for a company.

Which gives you some idea of the complexity of working things out.

Do you have any sites, calculations for working out if it's worthwhile or not. I'm unsure as to what all the fees are.

This isn't a web site "thing", everything is very specific to an individual set of circumstances.
It took me and an accountant several hours of discussion and a whole load of spreadsheet work to model it out over the course of a month or so.

There are two basic things to consider - what the best ongoing solution is and how you transition to it (and how much the former saves and the latter costs)?

[OneSmallStep]

I agree with jpkeates, when you are married you can change your tax position to suit. However, SDLT will be payable.

It looks like you could have the potential in future to hit the 60% tax bracket (100K - 123K earnings). If you have any BIK from your employer? as these all add to your 'adjusted net income'. Car, BUPA etc.....

When married, I would look at DOT to split the ownership more in favour of your wife. She can then use up her 50K lower tax allowance. If you then both pay into pension then you should be able to become tax efficient.

Obviously, allowable deductions come off your rental earnings. (make sure you use them all)

Ltd company is another option. Lots of info on the web. SDLT will be payable. There are lots of PROS and CONS with Ltd company arrangements. Also, we don't know what the future will bring, when/if the government decide to target Landlords who have set up Ltd companies ????

A good accountant and solicitor should pay for themselves.

[someonenew]

Thanks for the info guys. I guess speaking with an accountant is the next step. Have any of you used anyone from Manchester that you would recommend?

[Gordon999]

At present , you have one residential property which is your home and no rental income to report.

You have just bought a BTL in May 2019 ( this month) so you will be reporting the rental profit ( 2019-2020 ) some time during April - Oct next year . Submit a tax return your self or by local accountant or by online accountant company .

If the annual rental income is about £12K and after deducting expenses ,you are left rental profit at say £8000. So your tax bill at 40% rate will come to around £3200. If you have been charged annual loan interest at say £4000 , you will probably be allowed to deduct 20% x £4000 = £800 to offset against your tax bill to reduce your tax bill from £3200 to £2400. This will leave you = £8000- £2400 = £5,600.

Before you decide what is the next move, you should consult a tax accountant .