Contractors' Questions: How to avoid buy-to-let stamp duty hike?

Contractor’s Question: What is a Joint Borrower Sole Proprietor mortgage and can it benefit me in light of April 1st’s hike in stamp duty? And is a limited company still the best bet to avoid 2017’s rules designed to stop us landlords offsetting mortgage interest against our tax bills?

Expert’s Answer: With a traditional mortgage, the lender would require anyone who is named on the mortgage to also be named on the deeds of the property. But a Joint Borrower Sole Proprietor mortgage allows two people to be party to a mortgage, but only one to be the beneficial owner.

This newer-style of mortgage is typically used where both sets of income are required to satisfy the lender’s affordability requirements. But there can be good reasons for only one person to be named on the property deeds. Stamp duty is among the best of them; as where one borrower would be caught by the new SDLT surcharges introduced on Friday (between 3% and up to 15%), the second applicant wouldn’t. So due to putting the property in the name of the second applicant, only the lower rate of stamp duty would be payable.

Regarding your second query about the phased out removal of interest relief from April 6th 2017, a limited company is really the only way to continue fully deducting the finance costs against rental income. To use this workaround, you can engage your existing limited company or form a new limited company if you’re not already a PSC owner. Good luck!

The expert was Luke Somerset, IFA at ContractorMoney, a specialist in contractors' finances.

Thursday 7th April 2016