The introduction of a raft of regulatory and tax changes over the last few years has led to a rise in the number of landlords considering selling their property portfolios to, or purchasing new properties through, a limited company structure.
Research has found that landlords with large numbers of properties are now incorporating their buy to let business as they look to reshape their portfolios.
Nearly two out of three (64%) of landlords with more than four properties who plan to buy this year will purchase the property as a limited company, compared with just 21% who intend to buy as individuals. Across the market as a whole 44% of landlords planning to buy will use limited company status but that drops to 17% among landlords with one to three properties. Around two out of five (37%) of smaller portfolio landlords will buy as individuals, the research shows.
Why are increasing number of landlords incorporating?
In the 2019/2020 tax year, landlords will only be able to offset 25% of their mortgage interest for tax purposes and should therefore start planning accordingly. In the 2020/2021 tax year, all of a landlord’s gross rental income will be taxable and landlords will instead be given a reduction in their tax liability equivalent to 20% of their mortgage interest.
The phased reduction of mortgage interest tax relief does not affect limited company landlords meaning limited company landlords can continue to offset all of their mortgage interest against profits from rental income.
Limited company profits are subject to Corporation Tax which currently stands at 19% and is due to reduce to 17% by 2020/2021 tax year. This is lower than the 20% basic rate of tax, the 40% higher rate and the 45% additional rate in England and Wales.
Limited company applications are stress tested at an ICR of 125% – less than the 145% ICR most lenders apply to individual landlord applications.
IMPORTANT: The decision whether to incorporate as a limited company depends on a customer’s individual circumstances. There are a number of factors that need to be considered and customers should always consult a suitably qualified tax accountant and seek independent legal advice beforehand.
How can Precise Mortgages help?
Whether your customer chooses to purchase their next buy to let property in their personal name or through a limited company structure, Precise Mortgages can help. As the UK’s leading specialist lender and the lender brokers are most likely to recommend for limited company buy to let mortgages2. Our limited company products have already helped thousands of customers, including HMO and portfolio landlords. If your customer does decide to purchase a property as a limited company, here’s how we can help:
- No difference in product pay rates between individual and limited company products.
- Up to 4 directors/shareholders allowed. No limit on the number of director dependant shareholders under the age of 21.
- Up to 20 buy to let loans per individual with a combined value of £10m (unlimited with other lenders).
- HMO, multi-unit, holiday lets and refurbishment buy to let options available.
- 35 year term available. Minimum age 21 and can go to a maximum age of 80 at application.
- First time landlords, landlords with no residential property and first time buyers accepted.
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