Loophole that lets landlords dodge buy-to-let tax changes

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Oct 25 2016

Loophole that lets landlords dodge buy-to-let tax changes

If you believe all the blog/news articles being produced by certain industries such as a financial advisors and accountants it seems that soaring number of landlords are using the same tax loop hole to beat the recent tax changes that are being imposed by the government.

If you believe the stats then now over 60% of buy to let investments are being made through limited companies

More than six in ten are now investing in properties through limited companies to avoid rules coming in next year.

The reasoning behind these tax changes was to reduce the number of properties being bought by landlords and converted into rental properties. However it seems the new rules will not apply to landlords who invest through a company rather than as an individual.

I rang a couple of mortgage providers to see if landlords are indeed taking advantage of this potential loophole and they confirmed that the number of applicants from companies had increased significantly.


Then a thought entered my head, what if this was the objective of the government all along? Through making private landlords set up as companies does it make them more accountable thus paying the right level of taxes?


We may never know the true objective of the government but it does seem to be forcing private landlords to set up as businesses. However not all have the resources to be able to fund the increased deposit many lenders ask for when considering a commercial mortgage.

Of course the figure does not differentiate between landlords applying for funds for new properties and landlords moving their private stock to the business.

As competition increases among lenders will the deposit percentage decrease allowing more private landlords switch to a company and thus avoid the new tax changes.

As all private landlords will know they can claim tax relief on mortgage payments at the rate they pay income tax – up to 45 per cent. But over the next four years this will be gradually reduced to 20 per cent, making buy-to-let unprofitable for many landlords. I have many clients that if nothing else changes will be making a loss in four year’s time.

Add in the additional 3% in stamp duty that any buy to let investor has to pay when buying a property. Finally, well for the time being, increased affordability checks will be introduced in January to ensure a landlord can endure any sudden increase in interest rates.

When you look at the benefits of a company purchasing buy to let properties you can see why so many landlords are switching and why it might have been a government objective all along.

Limited companies will continue to benefit from the full tax relief, they can write off all costs of running their buy-to-let properties as an ‘allowable expense’ – including mortgage payments. Factor in that they then only pay 20% corporation tax on the profits, instead of income tax of up to 45 per cent paid by individuals.

Limited company owners could also benefit from more relaxed affordability checks as lenders will consider the fact they will still benefit from tax relief.

Is it only a matter of time before we see more lenders start to offer buy-to-let loans to limited companies as more investors choose to go down this route.

However, setting up a limited company is far more complicated than owning a property in your own name and there are costs involved.

I would urge anyone who maybe considering this option to get impartial professional advice to make sure all the maths works out.

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  • Forbes Kitchen

    Yes, but what happens when the government decide that mortgage interest is not tax deductible for Ltd Companies? It seems we are all at the mercy of the whims of government. Setting my Buy-to-Let up as a Ltd Company will be expensive, as I have 23 properties, all on interest only mortgages. It makes me angry when the label me as an investor, when I’m a business trying to make a living for my family and three kids.

    I have no confidence in any government, they are undemocratic sum bags. Looks like I’ll be in business with the purpose of paying the tax man. What I might do is transfer my house out of my name, then defect on all my loans. The lenders will repossess the properties, the tenants will go to the council for a house. I’ll be bankrupt, and can sign on the dole, and preserve my child benefit as I’ll lose that when I become a higher rate taxpayer. Not to mention save myself on council tax by signing on social security. Not to mention having a stress free life.

    4th November 2016 at 1:50 pm

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