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Published: 12/04/2017

Buy to let mortgages for limited companies

Landlords have been hit by several buy-to-let tax changes in recent years, and the latest came into being on 6 April 2017, at the beginning of the 2017/18 tax year. Essentially, the Government is scaling back mortgage interest tax relief, which could have a dramatic impact on the amount of tax landlords pay. Unsurprisingly, many are looking for ways to avoid these extra costs, often by turning to limited company arrangements – and buy-to-let mortgage providers are accommodating.

Buy-to-let tax relief changes

Prior to the start of the new tax year on 6 April, landlords were taxed on their profit – mortgage payments were deducted from rental income together with other allowable expenses before tax had to be calculated – at their rate of income tax. However, this system is being phased out over the next four years and replaced with a fixed tax relief rate of 20%, and landlords will no longer be able to write off their mortgage interest payments when calculating their profits.

Instead, all landlords will be required to pay tax on their rental income net of allowable expenses, less a 20% tax credit for interest cost, rather than on the difference between their rental income net of allowable expenses and their total buy-to-let mortgage interest (their profit). As a result, every landlord who pays 40% or 45% income tax will now pay much more, and even some basic rate taxpayers could lose out if the change pushes them into the higher tax bracket.

It isn't technically a relief either, but a tax credit: by 2020, 100% of a landlord's rental income net of allowable expenses will be taxable, but they'll be in line for a credit repayment of 20%. The tax will have to be claimed back, rather than being deducted at source, which could pose further difficulties.

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Only very wealthy landlords who don't need mortgages will be able to escape this latest tax hike, but a lot of others could find that their buy-to-let (BTL) portfolios are a lot less profitable – and some could even be pushed into a loss.

Incorporating is key

In order to avoid this latest tax hike, many landlords are looking for alternative ways of running their business, and are incorporating into a limited company. By switching to commercial property ownership, they'll no longer be taxed according to their income tax rate, but will instead face capital gains tax and a range of other costs. However, while for some this is proving to be a cost-effective decision, just make sure to take professional advice before you take the plunge.

Several reports in recent months have shown that many landlords are indeed taking this route, with a definite rise in landlords choosing to incorporate – and our own data shows that buy-to-let mortgage providers are increasing their range of suitable deals as a result.

As the table below shows, there are currently 303 buy-to-let deals available to limited companies, having more than doubled in the space of 12 months, with just 133 such deals available in April 2016. The current total equates to 19% of the total BTL mortgage market, up from 10% a year ago, and a notable rise from the 5% market share these deals in April 2012, when there were just 30 buy-to-let mortgages available to limited companies.

April 2012
April 2015 April 2016 6 months ago Today
Number of BTL deals available to Limited Companies 30 85 133 201 303
Number of BTL deals 633 804 1,315 1,448 1,530
Proportion of market 5% 10% 10% 13% 19%
Source: Compiled 11/04/2017

This shows how rapidly the market is expanding, and highlights that providers are increasingly willing to accommodate this growing sector of the market given such heightened demand. Indeed, figures from Mortgages for Business recently revealed that 77% of all BTL purchase applications in the first three months of the year were made via a corporate vehicle, an "unparalleled high", as more and more landlords seek to avoid the tax changes.

What next?

Compare buy-to-let mortgages with our BTL Best Buys

Use our calculator to find the best buy-to-let mortgage for your needs

Considering incorporating? Make sure to get the right advice


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