Limited company buy-to-let loan applications more than double
The number of buy-to-let loan applications from limited companies has surged in recent months as landlords prepare for tax hikes starting in April, say mortgage brokers.
The latest Buy-to-Let Index, produced by specialist broker, Mortgages for Business, found that 38 per cent of its applications by December 2015 were from limited companies, up from 15 per cent in October; the month before the changes were announced in the Autumn Statement.
The broker’s figures come as popular alternative lender Aldermore reduces its rates and removes its fees on its limited company mortgages in anticipation of increased demand.
The move by landlords to create limited companies come after Chancellor George Osborne announced in his July 2015 Budget that mortgage interest relief would be capped at 20 per cent from 2017, rather than allowing individuals to claim relief at the marginal rate of tax.
The deductions from property income for loan interest will be restricted to:
- 75 per cent for 2017/18
- 50 per cent for 2018/19
- 25 per cent for 2019/20
- 0 per cent for 2020/21 and beyond.
A basic rate reduction on income tax liability on the loan interest, calculated at 20 per cent, will still be available to buy-to-let landlords.
This announcement was subsequently followed by new measures in the Autumn Statement, which will see the introduction of an extra three per cent Stamp Duty Land Tax (SDLT) surcharge for buy-to-let and second home purchases from April 2016.
Under the new rules, a house bought for £275,000 as a second residence or as a buy-to-let investment would incur SDLT charges of £12,000 on the purchase of the property, which is £8,250 more than would currently be paid.
These changes have led some landlords to fear reduced yields or losses, which has led many to find new ways of cutting the costs of buy-to-let by either purchasing properties before the SDLT changes come into effect, or setting up limited companies that will still be eligible for higher rates of mortgage interest tax relief.
David Whittaker, Managing Director at Mortgages for Business, said: “The increase in limited company buy-to-let activity is to be expected since the proposed restrictions to buy-to-let mortgage interest relief for individuals paying the higher tax rate were announced by the Government in the Summer Budget.
“Operating portfolios through corporate structures is expected to be more tax efficient, particularly for higher tax rate-paying individuals, including individuals where the new tax regime will tip them into the higher tax bracket where previously they had remained below it.”
Link: Buy-to-Let Index