If we were to ask you what you thought would be the most popular business type in the UK, what would you say? Cafés and restaurants? Nail bars? Or maybe mortgage brokers, even? The answer, it turns out, are buy to let businesses.
A recent article in The Guardian reported how limited company buy to let businesses are now the largest single business type in the UK – and by a long chalk, too.
In fact, the national media title revealed how, with over 400,000 buy to let businesses now in the UK as of February, there are nearly four times as many limited company buy to let businesses than fast food outlets and hairdressers.
Even as a Guildford mortgage broker that regularly manages limited company buy to let mortgage applications on behalf of our clients, we were taken aback by the scale at which this business type has grown.
So, what exactly has happened, and what are the benefits of limited company buy to let mortgages?
The changing face of buy to let mortgages
As we’ve covered extensively over the years, the ease at which buy to let properties could be used as an investment vehicle changed in 2017 when then-Chancellor, George Osborne, made changes to buy to let tax treatment.
In short, buy to let ownership became less lucrative for those buying a buy to let property with a mortgage as the associated costs – such as the mortgage itself – were no longer fully tax deductible.
The result? Many landlords sold some, or all, of their buy to let portfolio. Others, however, wrapped their portfolio under a limited company, which meant that limited company tax treatment could be applied to buy to let property ownership.
So, let’s take a look at four benefits of limited company buy to let mortgages.
1. Tax deductible *
Unlike the tax implications of owning a buy to let property personally following the implementation of Osborne’s rule, known as Section 24, which prevents 100% of mortgage interest being deducted from rental income before being taxed, buy to let property owners who own their property via a limited company buy to let business can deduct ALL of their mortgage costs (and ALL of the costs related to running the business).
2. Higher tax savings for higher-rate taxpayers *
Rather than the rental profit attracting income tax, profits on rental properties as part of a limited company are taxed at the corporation tax rate, which is currently 19% on profits less than £50,000 and 25% on profits over £250,000.
3. In reserve *
With buy to let income on personally-owned properties, as soon as it’s earned, it has to be declared on a tax return. However, as a limited company is its own legal entity, the money earned from buy to let property can sit in the company, as cash reserves, for as long as you like. Or, maybe you want to use the profits to buy more properties, or transfer the money – tax-free, of course – into a pension. Essentially, until you draw profits as dividends, you won’t be personally taxed.
4. Family planning *
A limited company can be passed to family members without attracting inheritance tax and capital gains tax. So, if you die with a large portfolio, the buy to let business can be passed to family members without them having to pay a tax bill. This wouldn’t be the case if you personally owned buy to let properties.
Of course, there are disadvantages of limited company buy to let companies, too. One example is that the interest rates charged are generally higher. This is something that a specialist limited company buy to let mortgage broker can cover off with you.
As we’re a limited company buy to let mortgage broker in Guildford, why not get in touch with us to discuss the pros and cons of limited company buy to let mortgages – and access the best buy to let mortgage deals in the UK.
For award-winning buy to let mortgage advice, contact Complete Mortgages’ team of mortgage advisers in Guildford on 01483 238280 or e-mail info@complete-mortgages.co.uk.
* please note that Complete Mortgages is unable to offer advice on an individual’s personal taxation situation and the impact this will have on their buy to let property portfolio and income. Always seek further advice from a tax specialist before proceeding.
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