By Lewis Chambers, Director of Mortgages and Finance at Bradley Hall Chartered Surveyors and Estate Agents
Limited company buy-to-let mortgages are becoming increasingly popular, and my team and I have seen a stark increase in cases throughout 2019. Mortgages for Business reported that this year 59 per cent of lenders on the market now offer a form on limited company product, supporting that the demand for such products continues to grow.
Alongside the growing availability for mortgage products to suit this market, there has also been a significant decrease in interest rates. Historically, interest rates for limited company mortgages has been substantially higher than personal product rates, however this variance continues to drop.
Between 2017 and 2020 the amount of tax relief which individual landlords can benefit from is being gradually cut from a maximum of 45 per cent to 20 per cent, however, this does not apply to limited companies. Other advantages of utilising this particular method include change of ownership. Should that be required, adding a family member as a shareholder can be achieved more conveniently than changing ownership of a property through a sale.
It is likely that the ability to grow a portfolio within a Limited Company will be accelerated in comparison to owning the portfolio as an individual landlord as there will be no income tax on the retained profit, thus allowing more cash to re-invest. Although corporation tax is payable on trading profits, which will reduce to 18% by 2020, this is lower than the higher income tax rate of 40%. Funds are retained within the company itself, and the ability to control how much income is taken personally allows the potential to reduce income tax liability.
Although there are many advantages of purchasing buy-to-let properties through a limited company, there are also possible stumbling blocks which limited company landlords must be wary of. Although lender options are growing, they remain fairly limited and finding the right product for your circumstances may be time consuming and difficult. Often brokers have access and knowledge of bespoke solutions which are not readily apparent online or in branch.
Tax on both equity release and property transfers could incur unsuspected costs including income tax, stamp duty land tax, legal costs, higher rates and potential capital gains tax if not handled correctly.
Establishing a limited company buy-to-let portfolio can be a challenging process, and even for the more experienced businessperson, unnecessarily time consuming. Speaking to an expert in this field will most likely save you time, money and support the ability to ensure your venture is profitable. For more information please speak to Bradley Hall’s Mortgages team on 0191 260 2000 or firstname.lastname@example.org .