According to one of Britain’s leading buy-to-let mortgage companies, over 75 per cent of borrowing for buy-to-let purchases will be made through limited companies in the next year.
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The prediction from Foundation Home Loans comes shortly after a specialist mortgage broker released market survey results revealing that numbers are already well up compared to last year.
Buying property through a limited company
Broker Mortgages for Business revealed this month that lending to limited companies accounted for 30 per cent of all buy-to-let purchases in the first half of this year, compared to 18 per cent in the first half of last year.
They also say that the number of lenders offering products and the number of products available to limited companies has shot up.
This has, it seems, led to a surge of would-be landlords wondering whether they should buy their investment property through a limited company.
Landlord tax changes
There’s speculation that the spike in limited company purchasers is caused partly by landlords attempting to sidestep buy-to-let tax changes introduced by George Osborne.
Previously, landlords have been able to claim tax relief on their mortgage interest payments based on their tax bracket. This meant landlords in the highest tax bracket could claim up to 45 per cent tax relief.
Under new rules – being phased in over four years – tax relief will be capped at 20 per cent for all landlords, regardless of tax bracket.
But if a landlord sets up a limited company and buys their rental property through the company, they fall under different tax rules: they have to pay 20 per cent corporation tax, instead of income tax of up to 45 per cent.
If a landlord buys a property as a private individual and then later sets up a private company, they’d have to sell the property to the company to take advantage of this, and they’d then be eligible to pay capital gains tax.
What do you think about landlords incorporating as private companies? Is it a shrewd move or a cynical dodge?