With tax changes for buy to let landlords in April 2017 it is expected that more and more will be setting themselves up as a limited company. This is, of course, with the aim of becoming more tax efficient.
The mortgages for business index also suggests that landlords are transferring existing portfolios into companies, reducing the number of individuals applying for buy to let remortgages.
The number of lenderss that that offer companies mortgages is fairly limited being only 14 with a total of 198 products to choose from. This represents around 16% of the total number of mortgage options available in the whole buy to let market.
In fact, remortgage applications by companies are up from 23% in the third quarter of 2016 to 31% in the fourth quarter.
According to the index, 69% of new purchase applications were through a limited company, a very significant increase on the 21% before George Osbourne made announcements on tax changes in July 2015.
There are drawbacks to having limited companies own buy to lets, so it is always a good idea to seek advice before going down that road.
Companies incur costs an individual doesn’t, such as the preparing of accounts and carrying out the various tax calculations. It might be the case that an accountant will charge more for filing company accounts than it does for individuals, another factor to keep in mind.
There won’t be capital gains allowance either, companies can’t take advantage of the £11,000 allowance given to private individuals.
There are plenty of upsides, though. An investor could grow their portfolio quicker with a company as no income tax is payable when reinvesting profits and tax payable as a corporation slower than the higher rate of personal tax.
At the same time form April 2017 the amount of buy to let relief will be cut from a maximum of 45% to just 20% for those in the higher tax bracket.
A further benefit is using director loans as an efficient way of taking money out of a company.
As the tax changes are closing in it seems very unlikely that the trend of more buy to let company borrowers being halted or moving backwards. And, although mainstream lenders might be lacking in experience of offering this sort of product, there are smaller lenders that have plenty of it.
While we don’t look at company buy to lets, we do know some great brokers that can help you out.
We are sticking to what we know – short term bridging loans and development finance, which is often used before a property is put into a letting portfolio.
Now is a great time to take advantage of the short term market with lots of money, plenty of lenders and a willingness to fund new business.
If you have 10 minutes, give us a call, if you have 30 seconds get in touch so we can arrange a time for a proper chat.