From the tax year 2020/21, higher and additional tax rate (40% and 45% respectively) paying landlords who personally own buy to let property will only be eligible to claim tax relief on finance costs – including mortgage interest – at the basic rate of 20%, instead of at their highest marginal rate. This restriction will also hit landlords whose total income including buy to let income (before deducting finance costs) is sufficient to push them into a higher tax bracket.

Should I be borrowing via a limited company going forward?

For many landlords, taking out a buy to let mortgage via a limited company is now more tax efficient than borrowing personally, although we advise you to seek professional tax advice before you make any property investment decisions.

How will my taxation work through a limited company?

Limited companies pay Corporation Tax, not Income Tax, and as such are not affected by the forthcoming changes to tax relief on finance costs for personal BTL borrowers. However, the owners of the company will then need to extract the net income from the company at which point income tax on salary and / or dividends will be due. Everyone’s circumstances are different so please ensure you take professional tax advice before proceeding.

Does it take longer to process a limited company application?

On the side of caution, we suggest allowing extra time. Generally speaking, applications made by individuals and newly established limited companies take a similar time to process, as the background checks are only carried out on the individual applicant/director(s).

Are buy to let mortgages for limited companies more expensive?

It all depends on the lender, but bear in mind that many mainstream providers of buy to let mortgages may not provide limited company BLT mortgages.

Why can I borrow more via a limited company than personally?

As a result of the changes to income tax relief on finance costs, on 1 January 2017, the Prudential Regulation Authority (PRA) introduced new guidelines requiring lenders to tighten affordability checks on buy to let landlords borrowing personally.

Can I simply transfer personally owned rental property to a limited company?

No. By law, the transaction must be treated as a sale by you to your company and will be classed as a related or linked transaction. The good news is, most buy to let lenders who offer products to limited companies, will consider related transactions.

As always, make sure you discuss this change to your accountant or tax agent. While it might appear limited companies might be cheaper, there are fees and other costs that limited companies require when first establishing and ongoing.

Give us a call to discuss a potential property investment on 01925 711 558

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