Limited company usage soars for buy-to-let
A warning to buy-to-let investors that a limited company is the “only way” to offset mortgage interest without restrictions has more than got through, as the vast majority are now ‘Ltd.’
“As the amount of mortgage interest that landlords can offset against tax diminishes over the next four years…this is likely to spur on demand for incorporation,” said Kent Reliance.
According to the former building society’s probe into 856 landlords, the prospect of higher tax bills has motivated another action -- the transfer of property ownership to a spouse.
Almost a fifth of those probed intend to shift their investment to a spouse on a lower tax rate in the future, but this proportion (15%) was said to be more of a “conservative” estimate.
Firstly, the same chunk of respondents said they were yet to fully grasp the benefits of such a move and secondly, the other tax-mitigation technique of ‘going Ltd’ is set to gain in appeal.
In fact, although forming a limited company is currently more popular with larger-scale, portfolio landlords, all types of property investor will benefit if interest rates normalise.
“Interest rate normalisation would see the monthly cost of mortgage finance rise at the same time that the proportion of it that is tax deductible decreases,” Kent Reliance said.
“While transaction costs such as capital gains tax or stamp duty are a consideration for those moving properties into a limited company vehicle, the long-term financial argument would become more compelling.”
The lender pointed out that its probe was carried out in the third quarter of 2017; so before “the more significantly detrimental” planned reductions get phased in, as an IFA to contractors has described them.
Addressing contractors who invest in property, that IFA -- Jason Powell, chief executive of CMME, implied in November that they had a “lucky escape” from potentially further taxing measures from Philip Hammond.
Reflecting after the chancellor’s statement, Mr Powell wrote: “Fortunately, there were no brazen raids on the fundamentals of the financial arrangements contractors tend to have in place, like buy-to lets”.
Andy Golding, the chief executive of Kent Reliance agrees. “The lack of additional action in the Autumn Budget, aside from the consultation announced to encourage longer-term tenancies, will come as a pleasant surprise to many property investors who were braced for further intervention.”
“Even so,” he added, “it will take some time for landlords’ confidence to bounce back from the multiple blows it has taken in the last two years.”