Do your ‘Buy-to Let’ properties have enough protection?

Most buy-to-let owners will have landlord insurance, as standard home insurance does not cover rental properties appropriately and specialist insurance is essential when it comes to protecting your assets.
But have you also considered life insurance to protect your portfolio?
This is often overlooked by landlords, and possibly for a very obvious reason: when you take out a residential mortgage, life insurance is generally recommended in order to pay off the debt. But, as buy-to-let mortgage debt is generally serviced by the rental income received from tenants, most landlords see little need for the extra protection.
However, you and your family could be at risk of losing thousands of pounds without it; not to mention jeopardising the portfolio you have spent time, energy and money building up.
Landlords may have spent years building up an estate worth a substantial amount of money. Upon their death, their family could face debt they do not qualify for and an inheritance tax bill of 40 per cent; not to mention the fact HM Revenue & Customs usually require their bill to be paid within six months. Due to this, families often find themselves in a position where they are forced to sell some of the properties quickly at a discount.
Having buy-to-let protection in place removes that risk, as the policy can be used to pay the mortgages and tax bill. What is more, if policies are set up in trust, pay-outs are protected from inheritance tax (IHT).
Unfortunately, for ‘private landlords’ (individuals who own their properties in their personal names), life insurance premiums are NOT tax deductible against either rental income or capital gains.
The reason for this is that HMRC don’t regard life insurance as a business expense – even if the landlord wishes to use the proceeds to repay mortgages!
However, it is a worthwhile expenditure. Additionally, there is one way to get a tax deduction for life insurance …
Investors who also have a company can pay for their life insurance via their company, and get tax relief for the insurance premiums. A Relevant Life Policy is a life insurance policy taken out by an employer-company on the life of an employee (in this case, the owner).
This kind of life insurance allows a company to pay the premiums (which are tax-deductible, just like any other business expense) while allowing the proceeds on a death to be paid to the nominated beneficiaries tax-free.
Companies who set up a Relevant Life Policy for employees, including owners, don’t pay any Benefit in Kind National Insurance on the provision of this benefit, and nor does the employee.
This, of course, is far more preferable to life insurance premiums being paid from taxed income, and is yet another example of the tax benefits of being ‘self-employed’ through your own limited company i.e. the option to pay expenses and be taxed on what’s left, rather than be taxed at source and then spend tax-paid money on business-related costs.
In summary; life insurance is a must-have for most property investors – enabling mortgage borrowings (or at least, a chunk of) to be repaid on the investor’s death, thereby setting the surviving family up with debt-free properties that will generate income for the future.
However, life insurance has to be affordable – and obtaining tax relief via a company goes a long way to ensuring that life insurance costs make sense in life as well as death.
If you’re not sure what your options are, take financial advice from an Independent Financial Adviser before buying your insurance product.

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