Buy-to-let landlords form companies to save tax

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There has been a big shift towards landlords setting up limited companies according to the website Mortgage Strategy (April 2017).

The reason for this is that limited companies are not subject to the reduction in tax relief that landlords can claim on mortgage interest payments. Limited companies pay corporation tax, which can work out cheaper.

There are set up and other charges that limited companies must pay and these need to be taken into account when a landlord considers the profitability of a limited company owning property compared to individual ownership.

New affordability rules introduced by the Bank of England mean that there are stricter conditions applied to mortgage applications for landlords that own a few properties. Despite this, over the last 12 months, there has been a 136% increase in the number of buy-to-let mortgage products available for limited companies.

Though the number of limited companies buying property has increased, Mortgage Strategy said that there are only 14 lenders out of a total of 77 who offer buy-to-let mortgages to limited companies. These tend to be smaller lenders rather than the larger high street banks and building societies. Many of them specialise in limited company lending. Larger lenders could offer limited company mortgages in the future.

Limited company buy-to-let mortgages are available at between 65% and 75% of the property’s value, which means that landlords forming limited companies will still need to find large deposits. Interest rates on these commercial mortgages are between 3.19% and 3.29%.

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