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.
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.
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.”