Should landlords form limited companies for buy-to-let properties?

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According to the Limited Company Buy to Let Index, there was a 6% increase in the second quarter of 2017 of companies purchasing buy-to-let properties. The reason for this is that there are tax advantages if limited companies own properties rather than individuals. However, creating limited companies is not suitable for all landlords.

As of April 2017, the 45% tax relief on mortgage interest payments was reduced to the basic rate of tax for buy-to-let landlords. Limited companies can offset all of their interest payments against tax. Corporation tax is payable by companies, but this can often be lower than an individual landlord’s income tax.

However, there are also some disadvantages of owning properties through limited companies and not all landlords will save money this way. Not every mortgage lender offers commercial mortgages for buy-to-let properties and those that do tend to charge more interest than they do with buy-to-let mortgages for individuals. There are also set-up charges and administration costs associated with forming and running limited companies.

Some experts in the buy-to-let sector say that only landlords with four or more properties should consider forming limited companies to own the properties. Landlords with fewer may not save money by transferring ownership of properties to limited companies.

Any landlord considering forming a limited company should seek independent financial advice. A mortgage broker will be able to find a suitable mortgage lender to provide finance for a limited company to buy rental property.

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