The interest relief on buy-to-let commercial mortgages is being phased out, which is why some landlords are forming limited companies to own properties as they believe that this will save them tax. However, a report in July 2017 on the website BridgingAndCommercial.co.uk referred to research that showed landlords may not necessarily save money overall if they transfer properties from private to company ownership. Landlords should not assume that forming limited companies will automatically save them money.
The reason for this is the higher interest rates for company commercial mortgages. An individual landlord can find a buy-to-let mortgage for around 1.92% compared to the rate for limited companies of 3.41%. One factor causing this is that there are fewer lenders who provide commercial mortgages for companies. There are many more finance organisations that lend to individual landlords, and fierce competition amongst them has kept interest rates low. For some landlords, the higher interest rate payments will be greater than the tax they save.
Transferring existing properties to limited companies will probably incur capital gains tax and stamp duty. There are also extra administration costs in running companies and filing financial returns.
The report says that landlords with more than three properties are more likely to save money through limited companies, but portfolios of fewer than four properties could save little or even lose money.
There are risks involved, and landlords are advised to seek professional advice before forming limited companies to own buy-to-let property.