Limited Company BTL mortgages are now available up to 85% LTV and rates start from 3.09%.
The buy-to-let market has been hit by numerous tax changes in the last couple of years. Two of the main ones being:
- the introduction of a 3% Stamp Duty surcharge
- Until April of this year private landlords could deduct both mortgage interest and other allowable costs, from their rental income before calculating the amount of tax due.
The restrictions on finance cost relief in particular has created a substantial increase in demand for Limited Company BTLs, which in turn has increased the number of lenders and products that are available for this market and this has caused a welcome reduction in the mortgage rates.
Before considering embarking on a purchase or re-mortgage in a Limited Company, the various Pro’s and Con’s should be considered:
- From 2017 to 2020, the amount of Buy to let tax relief that individual landlords can claim back will be cut from 45% to 20% for top rate taxpayers. This change does not affect Limited Companies.
- The first £5,000 of dividends is tax free, though this is likely to be reduced to £2,000.
- No income tax is payable when reinvesting profits to purchase further properties, although corporation tax is payable on trading profits.
- Limited Liability. If the company is dissolved then personal assets are protected (unless guarantees or other security is given)
- Properties within Limited Companies benefit from indexation allowances for the purpose of calculating capital gains whereas individuals get no such relief
- Incorporation relief can re-set the clock in terms of capital gains by washing them all into the value of shares created at the point of incorporation. Therefore, if the company was to sell a property the day after it acquired it there would be no tax to pay because there would be no capital gain. The historical capital gains on properties transferred into the company will only ever be paid if the shares in the company are sold. Once you die, any capital gains rolled into the shares dies too.
- No personal Capital Gains Tax (CGT) allowance when the company sells a property
- Transferring properties that are already owned by an individual into a Limited Company may be considered as a sale and purchase and may trigger a capital gains tax, stamp duty and re-mortgaging costs. Relief is available to mitigate these but only in certain circumstances. Seek professional guidance from Property118 on this point
The above is only an outline and professional advice should be taken from a competent commercial broker and specialist tax adviser.
As mentioned, the popularity of Limited Company BTLs has increased dramatically and this has increased the number of providers and products which has pushed down the costs, a trend that is quite likely to continue.
The differential in terms rates and LTVs for individuals and companies is narrowing on an ongoing basis.
In my next article I will be shining the spotlight on alternatives to traditional mortgage funding so please watch out for that.
Contact Malcolm Jones
Commercial Finance, Development Funding and Bridging Finance