Weighing up the benefits of limited companies for buy to let – Just Mortgages

Changes to Stamp Duty and mortgage interest rates are continuing to affect the mortgage market and, to beat the latest buy-to-let crackdown, there’s been an increase in buy-to-let mortgage applications from limited companies.

However, it is important to realise that setting up a special purpose vehicle incurs its own administrative issues and costs including set-up fees. In addition, transferring existing properties into an owner-managed company has Stamp Duty Land Tax implications and a requirement to pay Capital Gains Tax.

The pool of lenders offering specialist limited company buy-to-let mortgages has grown significantly in the last few months. Once it has successfully been set up it is relatively easy to buy new properties through the limited company. There will also be financial advantages but professional tax advice and thorough planning should be taken.

Recent industry statistics revealed that 40% of landlords are either considering or are at least looking at forming a limited company to help limit their exposure to changes that will ultimately restrict mortgage interest. But due to the associated costs, a significant proportion are still unsure about whether they should move their portfolio to a limited company, while some do not even consider it an option.

There are clearly benefits to transferring a personally-held property to a limited company structure but it isn’t a straightforward process. It is therefore imperative landlords are fully aware of the financial implications and must look in to the potential Stamp Duty charges and Capital Gains Tax they will incur.

It is likely there will be a growing need for specialist limited company buy-to-let products. However, in my opinion, first-time landlords will inevitably remain the key target for lenders, and acceptance of the impending tax changes in April will, in time, become the norm. It is therefore important that brokers continue to communicate with their clients about their requirements and intentions over the coming years in order to ensure their changing needs are met.