Landlord Tax: What is the Most Tax Efficient Holding Structure for You?

Tax tips: How to keep your portfolio safe and profitable

It’s never been wise to part with more cash than you need to, but right now it could put your properties at risk. On our latest edition of The Mashroom Show, securing your finances is a strong theme as we explored:

  • How the way you hold your properties can affect how much tax you pay.
  • New support from government and lenders – could it finally bring landlords some relief?
  • Learn about a scam that is targetting landlords.
  • Why Mashroom’s Rent Collection is like a lovely big cuddle!

The Mashroom Show is the place to come for landlords who need help and advice with insurance, tenant finding, mortgages, rent collection – and a whole lot more.

As part of our three-part tax series, we welcomed back Richard Cunningham. He’s a chartered accountant and tax advisor, and he wants landlords to find the best options to maximise their tax efficiency at a time when it’s never mattered more. 

Holding structures and tax with Richard Cunningham

In our last episode, Richard joined us to talk about income tax and allowable expenses, and it was received gratefully by our community. In this episode, he tells us about the most efficient ways to hold your properties. And if you don’t know what that means, you’re in the right place, so keep on reading or watch the video!

What is a holding structure?

‘A holding structure is the legal manner in which you hold the property,’ Richard says. ‘From a tax perspective, if you get it right, you’re looking at minimising your income tax, capital gains tax and your exposure to inheritance tax.’

So let’s break down the property holding structures available to you.

As an individual

It’s very common for landlords to hold their properties as individuals, in their personal name, Richard says. ‘It’s the simplest way,’ he tells us. ‘It’s suited to so-called ‘accidental landlords’ who may have inherited a property, and also may suit single people.’

But it may expose landlords to more tax than other options, he warns:

With this option, the market value of any property is included in your estate upon your death. If you hold your property as an individual you’ll be subject to capital gains tax and income tax. It’s probably the least flexible option, but it’s probably still the most sensible one if your affairs are very simple, say if you have one property.

Jointly, as a couple or partnership

What if you’ve bought with a spouse, or perhaps a friend?

‘With married couples typically a property is in joint names and from a tax perspective everything is divided 50-50 by default,’ Richard says. ‘But this means – because of the tax-free allowance most of us have – that if one partner isn’t earning a wage and one is, a 50-50 split will take more tax from you than is necessary.’

‘The way round this is to split the beneficial interest in favour of the lower earner, so they can make more use of their tax-free allowance,’ says Richard. ‘To do this, fill in a simple Declaration of Trust form and file it with Inland Revenue.’

‘If a non-married partnership buys a property together – be it friends, partners or family – there’s no default of 50-50 like a spousal arrangement, it’s whatever you agree.’

But, Richard emphasises, if you’re setting up a buy-to-let partnership with a mate then you might want to look at setting up a limited company.

As a limited company

‘For the uninitiated, a limited company is a separate legal entity, registered at Companies House. It’s become a very popular holding structure in the last couple of years,’ Richard says.

‘The pros and cons depend on your situation,’ he adds. ‘From a tax perspective, companies pay corporation tax, which is relatively low at present at 19% on profits.’

If it’s so good, why are only about 11% of all landlords running a limited company though? Might some be missing out? ‘A lot of landlords out there only have one or two properties, so it’s less likely to be worth them setting up a limited company,’ Richard explains.

‘Plus, if you’re an existing landlord and you have a portfolio of properties, incorporating – i.e. moving everything into a limited company isn’t necessarily a simple process. However, if you’re setting up as a landlord it’s much easier.’

As a trust

This is sometimes a useful option for families, Richard explains. ‘A trust is essentially a separate legal means of holding a property, but it’s not been as favourable an option for about the last fifteen years. Still, it can be useful for parents who want to pass property to their children, but at a later date. Trusts are most useful when it comes to inheritance tax planning.’

How can landlords decide which holding structure to use?

‘The best advice I can give is to get advice,’ Richard emphasises. ‘Find yourself a chartered accountant or tax advisor. They’ll be happy to give you a free initial consultation. There are a lot of banana skins in the process but they can walk you through it.’

Latest Property and Landlord News

Some good news about energy efficiency support!

Grant Shapps, the business secretary, has announced that middle-income earners are now eligible for grants worth up to £15,000 to make their homes more energy efficient.

We don’t know yet whether the grant can go to landlords, and it’s possible that as tenants pay the fuel bills it would go to them. However, either way, it could be a win in light of the upcoming EPC rating upgrade. It’s worth checking in with your tenant about applying for one of these schemes, as it will benefit both of you in the long run.

In a recent Mashroom Show episode, mortgage expert Stephen Smith called on lenders to help landlords get on top of EPC upgrades – and Skipton Building Society is doing just that.

As well as offering landlords a free EPC report for up to ten properties, the lender is helping landlords find out if they are eligible for any exemptions under the Minimum Energy Efficiency Regulations. You only need one mortgage with Skipton to qualify for this support.

Rental Reform: What’s Michael Gove got in the works?

As the new Housing Secretary, Mr Gove has promised that 2023 would usher in the Rental Reforms designed to improve living standards for tenants.

Reforms are likely to do away with Section 21 too, the ‘no-fault’ eviction option, so it’s certainly worth keeping up to date with changes coming through the pipeline. Mashroom will be sharing more about the updates as they become law.

Huge rental demand

There are now, on average, a staggering 36 enquiries per rental property. Rightmove is calling this the most competitive rental market on record.

Much of this surge is likely down to would-be first-time buyers having to put their home-buying plans on ice, thanks to cost-of-living hikes and the mortgage market mayhem, but demand outstripped supply even before that.

So, brace yourself for overwhelming interest levels if you’re preparing to list a property.

Scam alert: How to avoid ‘Guaranteed Rent’ or ‘Rent to Rent’ cons

Scams pose a huge risk to landlords up and down the country, and we’ve heard from some of them on the Mashroom Landlord Community. We sat down for a chat with Vanessa Warwick, long-time landlord and co-founder of Property Tribes, which is one of the UK’s leading property forums.

How does the scam work?

‘Someone comes to a landlord and says they want to rent their property for an extended period, usually three to five years,’ Vanessa tells us. ‘They’ll say that they can’t offer market rent but that they’ll take on the complete management of the property, and some will guarantee rent too.’

‘This may sound appealing on the surface, particularly if you’re going to be away for a while,’ she continues, ‘but the reality is that they don’t have the finances to guarantee rent to you. They sublet the rooms and create a margin from that. There’s now a whole mass of what I call ‘property guru’ courses teaching people to do this, to create a margin out of someone else’s property.’

What are the risks?

‘Often the only way these operations have of paying you is if the subtenants pay you,’ Vanessa says. ‘But they often just keep the rent, and if any issues come up, the operator just disappears. The landlord is left with a house full of tenants they know nothing about.’

Plus, subletting can invalidate insurance, breach mortgage conditions and even break the law, Vanessa warns.

How can landlords protect themselves?

‘One of my first red flags is someone approaching the landlord, especially on platforms advertising rooms to let, like Gumtree,’ Vanessa says. ‘If someone rings you up and offers to take the property for a few years, be on your guard.’

If you’re considering using an arrangement like this – for instance, if you’re going abroad for a few years – do intensive due diligence, Vanessa suggests. ‘See how long the company has been in operation. Look them up on Companies House. You’d want to see they’d been in operation for at least 2 years to have any confidence. They should be a member of an independent redress scheme – either the Property Ombudsman or the Property Redress Scheme.’

Vanessa’s bottom line? ‘Be sceptical. If in doubt, come to the Mashroom Landlord Community and ask. I’m a member and I try to answer as many questions as I can every day.’

Better Rent Collection

Mashroom recently launched its new Rent Collection plans, and our very own George Sinclair has been seeing a great response.

What does George think is behind this response? ‘Security is the main thing,’ he says. ‘You’ve got Mashroom in your corner if a problem arises, but with the additional rent guarantee and emergency cover, landlords who have signed up say they can sleep well at night now.’

Affordability has never been more important too, George adds. ‘Traditionally, high street agents would cost between 8 and 15% of your rent per month, whereas our packages are at 2% and 5% – and that includes legal cover, plus rent guarantee and home emergency cover rolled into the 5% package.’

‘Perhaps your tenant loses their job or breaks their leg and can’t pay the rent for a while? Rent guarantee cover helps you both during such times. Or say it’s a cold December night and the boiler packs up. Do you want to handle a call from the tenant and then try to get a contractor lined up, or do you want the tenant to be able to call the home emergency company straight away and get it sorted?’

If you want Mashroom to give you a cuddle, get in touch with George at

The Mashroom Show will be back on 16th December for our last show of the year, and it’s the final part in our tax series, this time looking at your tax planning opportunities – what better way to prepare for the coming year?Don’t forget to join the Mashroom Landlord Community on Facebook, and you can find us on all the other socials too.

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