78% of BTL purchases now for Limited companies

by Property 118

11:40 AM, 5th July 2017
About A year ago

78% of BTL purchases now for Limited companies

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78% of BTL purchases now for Limited companies

Mortgages for Business have reported that 78% of all Buy to Let applications are now in the name of limited companies post Section 24 mortgage interest relief reductions coming into force.

73% of all completions including remortgages this quarter were for limited companies up from 62% in the first quarter of this year. Click here to see full Mortgages for Business report.

This shows the massive switch from purchasing in landlords personal names as under section 24 the profit individuals are taxed on does not take into account mortgage interest meaning you can be taxed on a non-existent profit or pushed into a higher tax band with only a 20% basic rate of tax being allowed to be claimed.

However, for a limited company all mortgage interest is deducted from gross profit and taxed only on net.

Steve Olejnik, of Mortgages for Business said, “Landlords are increasingly looking to limited company structures because of the benefits they bring in the form of tax efficiencies and softer affordability testing. The structures are not without their hurdles, however, and we recommend all our clients take professional tax advice before deciding how to proceed.”

“The report also shows pricing improvements, particularly three and five-year fixed rates, as buy to let lenders seek to compete in the ever-increasing limited company space. Among buy to let products available to limited companies, the average three and five-year fixed rates fell by 0.4% each to 3.7% and 4.0% respectively. This further narrows the gap with the wider market, with the average three-year fixed rate across all buy to let products just 0.2% lower at 3.5%.”

Today I launch my comprehensive report on Section 24 of the Finance (No. 2) Act 2015

Today I launch my comprehensive report on Section 24 of the Finance (No. 2) Act 2015

24/10/2016

Today I launch my comprehensive report: Section 24 of the Finance (No. 2) Act 2015: “the unjust legislation that will make the UK housing crisis much worse.” I would like to thank all of those who have contributed to this report, which I hope will have a significant impact in our campaign to reverse this… Read more

 



Comments

Tobias Nightingale

12:08 PM, 5th July 2017
About A year ago

If anyone is interested there was the following exchanges the other day in the commons

Jim Shannon Shadow DUP Spokesperson (Health), Shadow DUP Spokesperson (Transport), Shadow DUP Spokesperson (Equality)
To ask Mr Chancellor of the Exchequer, how many rental properties will be affected by changes to mortgage interest relief being phased-in since April 2017.

Mel Stride Financial Secretary to the Treasury and Paymaster General
Using self-assessment data, HM Revenue and Customs (HMRC) estimated that only 1 in 5 landlords will pay more tax as a result of this measure. No estimate has been made specifically about the number of properties that will be affected by this change. This is because taxpayers currently do not inform HMRC how many properties their finance costs relate to.

Neil Patterson

13:05 PM, 5th July 2017
About A year ago

You can see in one area alone how much influence it is having.

Monty Bodkin

13:09 PM, 5th July 2017
About A year ago

Reply to the comment left by "Tobias Nightingale" at "05/07/2017 - 12:08":

What a pathetic answer by the Treasury.

Rate the answer here;

https://www.theyworkforyou.com/wrans/?id=2017-06-29.2007.h

Alison King

13:17 PM, 5th July 2017
About A year ago

Well, it's logical to surmise that most of the 4 in 5 landlords who are unaffected are made up of those with only one or two properties, and this is also the group most likely to have no mortgage.
The ones with multiple properties are also the ones most likely to have multiple mortgages and therefore to be hardest hit. So if 80% have an average of 1.5 properties and are not affected and 20% have an average of 6 properties and will be affected that means that 50% of privately rented properties will be affected.

Cautious Landlord

13:22 PM, 5th July 2017
About A year ago

How irresponsible HM treasury has been to introduce a policy which will increase costs and therefore prices (rent) for an unknown number of clients (tenants). 2 years on and I still can't get my head around how irresponsible and financially illiterate s24 is on all levels.

Darlington Landlord

19:20 PM, 5th July 2017
About A year ago

Reply to the comment left by "Alison King" at "05/07/2017 - 13:17":

I suspect from annecdotal evidence ( and I have 3 high earning friends in this category) there will be a significant number of amateur landlords with one or at most 2 properties who are those that moved in with their partners/got married/upsized for kids/bought in a cheaper area than they are living, didn't want to lose out on "guaranteed" property gains and are mortgaged up to the hilt. Most probably don't have a clue about clause 24 yet.

H B

7:55 AM, 6th July 2017
About A year ago

Reply to the comment left by "Alison King" at "05/07/2017 - 13:17":

Alison, your figure of 50% may be just for illustrative purposes, but it is probably pretty accurate. I have heard some good industry estimates in the range of 55% to 60% of total lending will be hit by S24.

Rents up, tenants evicted, landlords repossessed. This cannot work out well.

Sue Twyford

0:41 AM, 7th July 2017
About A year ago

I'm inclined to Alison's thinking on 50%.

Did I miss something in the claim that state can't estimate the number of properties that will be affected by S24 other than HMRC say 1 in 5 landlords being affected? Apparently they say "because taxpayers currently do not inform HMRC how many properties their finance costs relate to." Well I say BUNKUM! We have to state on our tax return how many properties are rented. Whilst the distribution of actual mortgage interest will vary across the properties, taxation (and relief) is on the sum of the whole. Whilst it might not be arithmetically or statistically correct to apportion an average cost distribution across the portfolio, it must be a reasonable indicator to HMRC of how many properties might be affected by S24.

My tax liability will jump this year but my actual 'profits' won't. I have a small portfolio (4) so I'm one of the 1 in 5 - I think there's more (thanks George!). There are no investors in my area waiting to pick up a property despite it being a 'hot' location - bit like looking for hens teeth! So, should I sell a property it will have to be to a homeseeker and the tenants will sadly find themselves homeless. A sad state indeed.

Rich Green

23:46 PM, 7th July 2017
About A year ago

Hello

What is a typical LTD CO B2L interest rate for a 75% LTV?
We've reviewed several times, and its always around 4.5%

We get 2.2% interest when in our personal name, which defeats any tax saving when we compare the figures on a spreadsheet over 2 and 5 years.

Neil Patterson

7:18 AM, 8th July 2017
About A year ago

2.89% at best or 3% TO 3.5% dependent on fitting criteria.

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