IS IT WORTH SETTING UP A COMPANY?

As the changes to tax relief for buy-to-let landlords begin to bite in the coming years, more and more people may choose to set up companies and run their property investment as a business.

Under the rules, which came into force in April, buy-to-let investors can no longer offset the entirety of their mortgage interest against their rental income. Previously, that interest was deducted from rental income before tax was applied.

The changes are being phased in, with landlords able to offset 75pc of interest this tax year, gradually reducing to zero by 2020. Instead, a tax credit will be introduced. Higher-rate taxpayers will be worst hit, with some potentially paying tax on losses.

One option is to go down the company route, as Iain Greer plans to, but this too has its pitfalls.

According to Shaun Church, of Private Finance, for small-scale investors, setting up a company could end up costing more than the savings made in tax. He said the additional outgoings involved in running a company, combined with higher interest rates on mortgages, could mean it may still make sense for “amateur” landlords to remain the direct owners of their properties.

“The main factors are the increased cost of borrowing,” he explained. Research conducted by his firm suggests buy-to-let companies can pay up to 1.5 percentage points more interest on a mortgage than individuals, and the need to file annual accounts may mean additional costs.