The pros and cons of a Buy To Let Limited Company Mortgage
Buy To Let Limited Company mortgages aren’t a new thing, but they are certainly getting more popular. But let’s start in a slightly different place:
“It’s a saving of £160 per month”
It’s not uncommon for me to utter sentences like that to customers whom I am helping to remortgage – especially if they have been on a 5-year fixed rate with their current lender or were only in a position to put down a small deposit when they bought their home.
The £160 per month saving referenced above wasn’t for a Remortgage customer though. I was speaking to a landlord who was buying another property.
They had asked me whether they should buy any future Buy To Let Properties through a Buy to Let Limited Company mortgage or through their own name.
It’s a question that is becoming more common since the government introduced changes to tax relief for landlords.
Seeking Tax Advice
My answer, of course, was “I can’t advise you on that, I’m afraid.” I then suggest that the customer seek some independent financial advice for someone qualified to talk about such matters. Although I can give advice regarding mortgages, this falls into the category of tax advice, which I’m not qualified to advise.
What I can do, though, is give examples. At this moment in time I based my figures on just the initial monthly payments.
So what is causing people to turn towards Limited Company Buy-To-Lets? Especially when they seem at first glance to be so expensive?
Tax relief for mortgages
The truth is that before the then-chancellor George Osborne announced the tax relief for mortgages interest changes in 2015, Limited Company Buy To Lets were a rarity.
How rare? Well in April 2013 there were just 17 Buy to Let Limited Company mortgages available. That figure is now in the hundreds.
Whatever the benefits of buying through a Limited Company (I can’t advise what you should do, remember!), the rates for Limited Company Buy-To-Lets are higher than the rates for the rest of the market, which are coming in on average over 1% cheaper.
Historically, there has only been a requirement to declare any rental income after the mortgage has been paid. This meant that you could cut your tax bill and in turn potentially save thousands of pounds.
Since April 2017, landlords have had to change the way they declare their rental income. This has meant that most will see a big rise in their tax bills.
The future for landlords
From April 2020 all rental income will be taxable. Rather than deducting mortgage costs from the rental income landlords will instead receive 20% tax credit for their mortgage interest.
However, because the change to tax relief only affects private landlords it means that by setting up a business with the sole purpose of buying and renting properties landlords will be able to declare rental income after deducting the mortgage, as they have been able to do historically.
Interestingly, TMW – the Buy-To-Let arm of Nationwide – have recently chosen to dip their toe into the Buy to Let Limited Company mortgage market. Their rates and fees seem to be far more favourable compared to many others in the market.
Fingers crossed this will see more mainstream lenders offering similar products and bringing some much-needed competition to the market.
Dan The Mortgage Man
07837 820 894