Many legislative changes have taken place over the past few years which have had an impact on landlords and would-be profits earned from their properties, however, landlords are remain positive regarding new investment opportunities. There are many who are planning to purchase property in the next few years and also doing so by setting up Limited Companies that could provide much needed solutions to these changes.
Top rate paying individual landlords have seen the amount of buy-to-let tax relief on mortgage interest payments reduced a lot from a maximum of 45% to just basic rate tax relief of 20%. Higher costs have forced some landlords to reduce their portfolio and stopped their plans to expand in the future. However, the reduction in tax relief does not include limited companies, who can continue to fully offset all their mortgage interest payments against the rent before calculating taxable profits. Limited Company profits are subject to corporation tax, big amount lower than income tax. A landlord will also be able to avoid income tax on their retained profit if they are looking to re-invest and grow their portfolio of properties at a faster rate.
Lenders are having favourable rental calculations, making it more affordable for owners
Another benefit of using a limited company to apply for a BTL mortgage is the more favourable rental calculations used by lenders. A limited company will not be affected by the tax changes and a lender does not have to take this extra cost into account as they do for mortgages held in a personal name. This means the lender can offer a more favourable rental affordability calculation meaning a landlord can borrow much more via a company structure.
£200000 purchase price, £800 month rent
2 year fixed rate of 2.99%
Typical loan for a loan for an Individual Application: £120376
Typical loan for a Limited Company Application: £153600
It is important to get advice from specialist tax advisors before proceeding with any new purchase as there can be many variables, which mean a strategy that is right for one landlord may different for another. It is also costly to move a property between individual name and company name or the other way.
If you need advice on getting finance for a BTL property, expanding your current portfolio or finding the best rates available for you, Nova Financial and one of our specialist advisers will be happy to help.