Calling buy-to-let investors! This one decision could save you a fortune in tax

This simple trick could save you having to pay huge sums to the taxman. But does it make buy-to-let a decent place to invest?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

No-one wants to pay more tax than they have to. I’m sure there are plenty of people out there, though, who feel particularly hard done by. I’m talking about buy-to-let investors of course.

The UK’s landlords are bearing the brunt of the government’s sustained failure to solve the housing crisis. Rather than rectifying disjointed homebuilding policy to boost the number of new homes, politicians are simply seeking to free up properties by forcing buy-to-let owners to sell up (or avoid the sector in the first place) by taking the scythe to investment returns.

One way in which they’ve done this is by giving the taxman plenty more punch. From hiking stamp duty on second homes, to axing wear and tear allowance and phasing out tax relief for mortgage interest, the subsequent impact on investors’ wallets has been staggering.

But there’s a way to get around this: by choosing to own and operate your property portfolio through a limited company.

Good company?

And recent data shows that more and more of us are saving a fortune in lost tax by doing just that.

According to Hamptons International, some 12% of rental homes in Britain are let out by a company landlord, the highest level for eight years. This is also up from 9% in 2015, just before those tax changes on mortgage interest for non-company landlords were introduced a year later.

Percentage of UK homes let by company landlords

Source: Hamptons International

But is this trick really a lifeboat to rescue returns for buy-to-let investors? Not in my book. Landlords still have to pay considerably more to the taxman than they did just a few years ago, even if they choose to do their business via a company. And with a flurry of other extra costs coming in, like those associated with the Tenant Fees Act, as well as the rising amounts of new regulation associated with rental property ownership, I for one am happy to avoid this particular investment arena.

Boxing clever

Those seeking to grab a slice of the British property sector would be much better off getting exposure via the stock market, in my opinion. And one great way of doing so would be by buying Tritax Big Box (LSE: BBOX), even if it is a bit of a departure from traditional buy-to-let investing.

This FTSE 250 firm provides so-called big-box spaces from which blue-chip retailers and fast-moving consumer goods companies warehouse and distribute their products. Demand for such space is red hot right now as businesses switch increasingly to automation to drive down costs and sell increasing volumes of their wares through online shopping.

And when it comes to the latter point, Tritax Big Box certainly appears to have a lot to look forward to, certainly if a new report from Retail Economics is anything to go by. The researcher estimates that more than half of all retail sales — 53%, to be exact — will be generated online within the next decade. This compares to around a fifth at the present time.

The stage looks set, then, for trading to thrive at Tritax. It’s already delivered a total shareholder return of 82% over the past five years, and there’s clearly plenty of reason for it to continue delivering knockout gains long into the future.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Tritax Big Box REIT. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

US Stock

The Nvidia share price falls! Here’s what I think happens next for the S&P 500

Jon Smith reviews the overnight results from Nvidia and explains why this could stall the S&P 500 performance through to…

Read more »

Investing Articles

Down 15% today, is this FTSE 100 share too cheap for me to miss?

JD Sports' share price has tanked after the FTSE 100 share released another profit warning. Is this the opportunity I've…

Read more »

Investing Articles

Up 8% today, is this FTSE 100 growth stock a slam-dunk buy for me?

Halma's share price is soaring thanks to another headline-grabbing trading update. Is the FTSE 100 stock now too good for…

Read more »

Investing Articles

With a P/E ratio of just 10.5 is now a brilliant time to buy a cut-price FTSE 250 tracker?

Harvey Jones says a recent dip in the FTSE 250 leaves the index trading at bargain levels. One stock in…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

To build a passive income flow, I’d follow this Warren Buffett approach

Warren Buffett has set up passive income streams most people can only dream about. Our writer sees some practical lessons…

Read more »

Growth Shares

As the boohoo share price falls, could it become a penny stock in 2025?

Jon Smith outlines some of the recent problems involving the boohoo share price and considers if things could get even…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Here are the worst-performing FTSE 100 shares over the last 5 years

These five FTSE 100 shares have been complete duds over the last half decade. But is there potential for a…

Read more »

Investing Articles

Nvidia stock has tripled this year! Can it keep rising?

Nvidia's latest sales update showed strong growth and the stock's been on a tear so far in 2024. So is…

Read more »