BTL landlords beat taxman with limited company structure

BTL landlords beat taxman with limited company structure

The number of buy-to-let landlords that have begun purchasing new properties in a limited company arrangement has increased.

According to Steve Olejnik, chief operating officer at Mortgages for Business, over 75 per cent of purchases through its office are now in a limited company structure in response to the tax changes which are due to take effect.

From April this year, the tax relief landlords are able to receive on residential property finance costs will be restricted to the basic rate of income tax.

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Mr Olejnik explained: “Before, a landlord would buy in their personal name and have the mortgage in their personal name and certainly the higher rate taxpayers, they were able to offset the mortgage interest against their income tax liability. 

“For higher rate taxpayers that’s being phased out now over the next four years.”

He said: “By putting it in a company structure, the companies haven’t seen the reduction in mortgage relief so the changes don’t apply to limited companies.”

At the Paragon Great Buy-to-Let Market Debate 2017 which took place in London last week (28 February) David Whittaker, chief executive at Mortgages for Business, predicted most landlords will buy further new properties in limited company structures.

David Hollingworth, associate director, communications at L&C Mortgages agreed this trend was “only likely to intensify as the changes to tax relief begin to take effect from April”. 

“Lower rates on corporation tax and the ability to set mortgage interest against income as an expense will appeal to those higher and additional rate taxpayers eyeing a growing tax bill,” Mr Hollingworth said.

“However, it’s a potentially complex area and brokers should be sure that landlords are fully conversant with the pros and cons.”

Michael O’Brien, director at Access Financial Services, confirmed holding buy-to-let property in a limited company will be suitable for some landlords.

But he cautioned: “It’s not for everyone in terms of they’ve got to look into it in more depth when considering moving existing portfolios into a limited company.

“However, it seems the advice for purchasing new property under a limited company arrangement is more tax efficient because you’re not crystallising the capital gains liability and you haven’t then got to pay stamp duty again – they’re the main reasons.”

He observes there are far more lenders into the market now, and named Fleet Mortgages and Atom Bank among others, “which obviously shows there’s increasing demand to look at that and they’re all coming out with different criteria”.

Mr Hollingworth noted: “There hasn’t been a big rush of the high street names to join the more specialist end of the market in offering limited company buy-to-let, so this type of lending remains an area for specialist lenders so far and not a mass market option.”