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Landlords jumping on the limited company trend must heed tax duties – Whitear

by: Mark Whitear, director of commercial development at Foundation Home Loans
  • 04/11/2022
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Landlords jumping on the limited company trend must heed tax duties – Whitear
Not so long ago, the notion of limited company buy to let was perceived to be a ‘niche within a niche’ and was merely deemed to be the preserve of bigger ‘corporate’ landlords with more complicated structures.

That has clearly changed, with the government measures to reduce the amount of mortgage interest tax relief landlords could secure causing a huge shift towards the use of limited companies, not just for portfolio landlords but specifically for any landlord considering a new purchase. 

In this case, the numbers don’t lie. According to recent data from Hamptons, the number of companies set up to hold buy-to-let properties has more than doubled in five years, up from 148,874 in September 2017 to 302,404 in September this year.  

In a way, we perhaps shouldn’t be surprised by this. Landlords were always going to seek out ways in which they could continue to maintain profitability, add to portfolios, etc, at a time when a number of previous incentives for investing were being taken away from them.  

And I don’t expect this trend to fall off; if anything, it seems likely that – as time progresses – the vast majority of landlords will be investing in the sector via a limited company.  


Consider tax burdens 

That being the case, what we may see now is an increase in is existing landlords who own the property in their individual name(s) beginning the process to move those homes into a limited company structure. 

Now, of course, this is a significant decision for any landlord, not least because it is defined as a change in ownership and is therefore subject to stamp duty. Landlords should be taking tax advice around this and weighing up any such move against the stamp duty that will need to be paid.   

It could be many thousands of pounds because of the three per cent surcharge that comes with stamp duty costs for landlords. But there might be those who when they crunch the numbers – especially with the recent cut to stamp duty – find out that over the long-term it will end up saving them money because they are able to secure the full mortgage interest relief available within the corporate structure. 

And, of course, the other point to make here is around the cost of running a property, particularly when coupled with potentially increased mortgage costs, plus of course all the other costs that come with being a landlord in today’s environment. 

Landlords will need to take into account the cost of running a separate company, but again if you already have one set up and you have been making new purchases within it (rather than in your own name) then those costs will remain pretty fixed. 

Plus, we no longer have the big discrepancies in terms of mortgage pricing that we did have between landlords purchasing/remortgaging within a limited company structure and those that buy as individuals. The pricing, for the vast majority of lenders active in the buy-to-let space, is exactly the same. 


The right timing 

Many landlords have made the call that paying the stamp duty on a property you already own right now might not seem like a good move, and perhaps if the landlord only intends to maintain their investment for the short-term, then it might not be right approach.  

However, if your landlord clients are in this sector for the long-term, and if they have plans to add to portfolios over that period, then they may be thinking now that moving existing properties into that structure now, could end up providing them with a long-term financial benefit. 

As always, the advice to advisers is to make sure you don’t stray into tax advice here and having a strong relationship with a tax adviser yourself might provide another string to your bow in terms of helping such clients.  

If that is a decision that appears the right one, it’s positive to know that many lenders have a range of product solutions available to those utilising a limited company, whether it’s newly incorporated or one with a more complex structure.  

Solutions can be found for a part of the buy-to-let market that is becoming far more common and is only likely to grow further as a method of investing in property. 

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