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Why are Limited Company Buy-to-Let Mortgages Becoming So Popular?

Published: 18 August 2016
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Author: Carl Shave - CEO and co-founder
Last updated: 16Jul2024

A 10-15% increase in limited company purchase applications signals that landlords are seeking new routes to avoid costly new changes to stamp duty imposed by Chancellor George Osborne in April 2016; with more bad news on the way in 2017, when mortgage interest relief will be capped at 20% (currently higher and additional rate taxpayers can claim tax relief at 40% and 45% respectively).

Stamped on by Stamp Duty

Announced back in July 2015, these changes hit buy-to-let landlords most significantly. April’s changes to stamp duty mean that buy-to-let investors will pay a 3% surcharge on their purchases, adding a not-insubstantial expense to their transactions.

“I Can’t Get No Relief”

With minimum tax rates on mortgage interest relief set to hit landlords square in the pocket next year, it’s little wonder that buy-to-let landlords, particularly those with growing portfolios, are turning to limited company buy-to-let mortgages to help mitigate the cost of the UK’s recent changes.

Why “Limit” Yourself?

By registering a limited company and using this as a vehicle to purchase property, landlords can still enjoy access to mortgage interest relief. For serial “buy-to-letters” with substantial portfolios, the benefits don’t stop there: Limited companies with 15 or more properties are currently exempt from the stamp duty surcharge – although this exemption is being debated. Other benefits include: – Tax free dividends up to £5,000 for individuals – No income tax on retained profit – making reinvesting and portfolio growth easier – Personal funds can be drawn from the company with director’s loans

The Downsides

This route is, of course, not for everyone. And there are also a number of disadvantages of using a limited company in this way. For instance: – No capital gains tax allowance on the sale of a property (individual CGT allowance is £11,100) – Higher mortgage rates are common for limited companies – Less choice in terms of mortgages and lenders – The costs of running a limited company (inc. accountancy, legal fees, registering with Companies House etc.) For landlords looking to invest in property as cost-effectively as possible, setting up a limited company in order to purchase buy-to-let properties is considered by some to be a smart move. However, for landlords with an existing small, static portfolio they do not intend to grow, transferring properties to a limited company is usually not in their best interests. That’s because the cost of transferring an individual property to a limited company, which is viewed as a technical purchase, is prohibitively expensive, counteracting any potential cost benefits. This is why limited company purchase applications are on the rise, while limited company remortgage applications remain at a steady level. Considering buying property as a limited company? Get even more information which could help you reach a decision here. Ready to buy as an individual or a limited company? We can help with that too. Our expert mortgage brokers leave no stone unturned in their search for a mortgage which suits your requirements and budget perfectly. Contact us today to discuss your needs on 0800 114 3495.