Fresh data has shown a significant rise in the number of landlords using limited companies to manage their buy-to-let portfolios, likely as a consequence of greater government regulation.
By incorporating buy-to-let into a limited company, landlords won’t pay income tax on the profits and will pay incorporation tax instead, which is lower.
Research by Mortgages for Business shows that 77% of applications for buy-to-let purchases were made by a limited company during Q1 of 2017, which is up from 69% of applications that were made in the previous quarter of 2016. Prior to former Chancellor George Osborne announcing the tax relief changes in his Budget statement in 2015, applications registered via a limited company were just 21% of the total.
And, in response to the heightening in demand from limited companies, the number of products available to borrowers in this category rose by more than a third, with limited company rates now at a record low.
The Budget changes meant that in 2017, tax relief for buy-to-let will gradually be cut to a flat rate of 20%, compared with the 40% or 45% that landlords enjoyed previously.
This, alongside the higher stamp duty and tougher mortgage lending conditions has left many buy-to-let landlords with few options other than to turn to incorporation.
Mortgages for Business CEO, David Whittaker, told Landlord Today that ‘with the changing face of the buy-to-let mortgage market, it is no surprise that lenders are keen to appeal to limited company borrowers. We have been recommending for some time that our clients seek professional tax advice to determine whether incorporation is the most suitable route for their circumstances, and these figures can only further encourage landlords to consider their position.’
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