property_taxes_iconBuy-to-let mortgage applications from limited companies more than double as landlords strive to beat tax hikes

The number of buy-to-let loan applications from limited companies has surged in recent months as landlords prepare for tax hikes starting in April, say specialist broker, Mortgages for Business, who found that 38% of its applications by December 2015 were from companies, up from 15% in October; the month before the changes were announced in the Autumn Statement.

The broker’s figures come as popular alternative lender Aldermore reduces its rates and removes its fees on its limited company mortgages in anticipation of increased demand.

The impetus to form limited companies comes after Chancellor George Osborne announced in his July 2015 Budget that for individuals buy-to-let mortgage interest relief would be phased out between 2017 and 2020, rather than allowing interest to be claimed as an expense, thus saving tax at their marginal rate of tax. 

A basic rate reduction on income tax liability on the loan interest, calculated at 20%, will be claimable instead.  Interestingly, the changes do not apply to limited companies, who own a significant amount of let property in the UK.

Double trouble

This significant and unpopular change was closely followed by new measures announced in the Autumn Statement, which will see the introduction of an extra 3% Stamp Duty Land Tax (SDLT) surcharge for buy-to-let and second home purchases from April 2016.

Under the new rules, a house bought for £275,000 as a second residence or as a buy-to-let investment would incur SDLT charges of £12,000 on the purchase of the property, which is £8,250 more than would currently be paid.

Fast action required

These changes have caused some landlords to fear reduced yields or losses, which has led many to find new ways of cutting the costs of buy-to-let by either purchasing properties before the SDLT changes come into effect, or setting up limited companies that will still be eligible for higher rates of mortgage interest tax relief.  Neither are a simple strategy with just weeks to go before the next tax year, so many are simply using the shortage of property in the UK as a good reason to increase rents, resulting in the tenant feeling the true cost of this taxation policy.

I have found that smaller investors, those with just one or two investment properties are choosing to sell simply out of frustration but this certainly represents the minority.  Large corporate investors remain unscathed and will probably benefit from a surge in rents as economic supply and demand creates further volatility.  The only true way to solve our housing issues is to deal with the disparity between supply and demand, I really don’t believe tinkering with taxes and upsetting landlords is going to change anything.

David Whittaker, Managing Director at Mortgages for Business, was reported as saying: “The increase in limited company buy-to-let activity is to be expected since the proposed restrictions to buy-to-let mortgage interest relief for individuals paying the higher tax rate were announced by the Government in the Summer Budget.”

“Operating portfolios through corporate structures is expected to be more tax efficient, particularly for higher tax rate-paying individuals, including individuals where the new tax regime will tip them into the higher tax bracket where previously they had remained below it.”

A word of warning

Be sure to take professional advice so that your personal circumstances are considered before making any rash decisions; transferring properties to a limited company is not as straight-forward as it may seem and avoiding the SDLT uplift is unlikely to possible at this late stage. 

Also, if you need access to the funds generated by your property portfolio, a corporate structure may not be a cheaper option.  Companies are a lot more expensive to manage and do not have the privilege of an annual Capital Gains Tax exemption.


The information provided in this blog illustrates my opinions and experiences, it does not constitute advice and I do not accept responsibility for any actions taken or refrained from as a result of reading this post.

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