Buy-to-let landlords form limited companies to beat tax rises

Changes in the buy-to-let regulations have resulted in landlords receiving 20% tax relief on their mortgage interest payments. Previously, landlords on a 40% or 45% tax rate could claim tax relief at the same percentage as their personal tax rate up to 45%.

One way to lessen the impact of these tax changes is to form a limited company, then take out a commercial mortgage to purchase property. Tax is levied on the profits of the company at corporation tax rates. All costs associated in running and maintaining the property can be offset against the rental income. A limited company will pay less tax than if a high rate tax payer were managing the property as an individual.

In 2015, there were 55,000 buy-to-let mortgages secured through limited company loans, which represented around 20% of all buy-to-let mortgages. It is expected that in 2016, commercial mortgages for purchasing rental property will rise to 98,000 or 40% of all buy-to-let mortgages.

Another change that has affected landlords is the rise in stamp duty for purchasing buy-to-let properties. Many landlords have increased rents to help offset this cost. Rents are expected to rise by about 5.6 per cent in the next six months.

Despite government changes that have adversely affected the finances of buy-to-let landlords, this sector of the housing market shows no signs of decreasing.