Landlords are resorting to methods such as using limited company status when they acquire new properties, as a means of offsetting costs as a result of tax reforms in the buy-to-let sector, according to recent research conducted by lender Precise Mortgage.

Stamp Duty hikes and the phasing out of mortgage tax relief are just some of the new policies introduced by the government since 2015, which have significantly raised tax burdens on landlords.

Then-Chancellor George Osborne implemented the policies to rebalance the buy-to-let market, but there is evidence to suggest they have reduced landlord profits across the whole sector in the process.

National Landlord Investment Show – MPU

Limited company status, when used by a landlord during a property purchase, would have the effect of offsetting some of these regulatory changes, but it might not necessarily be a solution all landlords can afford to use.

New Buy-to-let investment strategies

As many as 64 per cent of landlords with large portfolios admitted they had resorted to using limited company status when making a purchase of new property, according to the recent research by Precise Mortgage, a leading specialist lender.

A landlord letting a home at a rate of £950 per month would see their tax bill double from April 2020 onwards, according to consumer organisation Which?, but limited company status would allow a landlord to offset all mortgage interest against tax bills as a business expense.

Alan Cleary, managing director of Precise Mortgages, claimed the idea was increasingly gaining traction, saying: “There are good reasons why limited company buy-to-let is dominating the purchase market and we expect that will continue to be the case this year and next.”

Not a solution for all landlords

In the market as a whole, the method is less commonplace, with 44 per cent of all landlords deciding to use limited company status when making purchases, according to the research by Precise Mortgages. There is a possibility that not all landlords may find it such a cost-effective strategy.

Reflecting on this fact, Cleary added that: “Brokers and customers, however, need expert specialist support when buying a limited company or considering switching to limited company status as there are considerable costs involved.”

Which? explained the costs associated with using limited status on purchases, claiming: “you may need to pay stamp duty on your current properties as you’ll be ‘selling’ them to the company. You may need to factor in capital gains tax liability too.”

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Peter Adams
Peter reports for Property Notify about how political developments have a direct impact on the UK housing market. He does this, through his reporting on topics such as Brexit, government policy and the various political arguments that surround housing.

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