It’s been a while since (the then) Chancellor George Osborn announced changes to the way Buy to Let properties are taxed, and although he is long gone, his legacy is about to come to fruition.
Anyone who pays high rate tax and receives rental income from a second home, will find the historic tax advantages currently available being phased out by 2020.
Under current rules, private landlords are entitled to claim tax relief back on mortgage interest at the rate they pay income tax – 20% for a basic rate taxpayer and up to 45% cent for a top rate tax payer.
For example, a landlord with an interest-only buy to let mortgage paying £1,000 a month can claim up to £450 of it back from the government in tax relief. Under the new rules this will reduce to just £200 by 2020.
The solution for some seems to be to set up a limited company within which to purchase the buy to lets. This enables the landlord to claim the costs of running the ‘buy-to-let business’ as they would any other 'allowable expense', effectively writing off the cost of mortgage payments, wear and tear, maintenance, letting agents' fees and other costs.
If you want to withdraw money from the company (i.e. the rent), you can pay yourself a dividend, which is taxable at the normal rate you pay tax on.
Owning any limited company means you pay corporation tax on any profit, but the good news is that the corporation tax rate of 20% is due to fall to 18 % by 2020.
If you already own property and you are tempted to transfer it to a limited company, Stamp Duty is payable on the value of the property and there could also be a capital gains tax bill. I would suggest speaking to an Accountant before deciding if it’s the right thing for your particular circumstances.
More and more lenders are allowing Limited Company buy to let’s and although the rates are little higher than other Buy to Let rates, they remain competitive.
Related Blog articles:
- How much Deposit do you need for a Buy to Let Mortgage?
- Why do people Buy to Let?
- What is a Buy to Let Mortgage?
For more information speak to a mortgage adviser on 01628 507477 or contact us .
Recent posts
Decorating Tips for Selling Your Property
8 days ago
Selling up? It’s important to make your house as appealing as possible to potential buyers. Good decorating can help with first impressions, and increase the perceived value of your property.
20 Budget-Friendly Activities
27 days ago
With the cost of living affecting so many of us, we have made a list of budget-friendly activities and ideas for you.
Moving and Packing Tips for a Stress-Free Move
21 Jul 2023
Moving soon? It's never too early to get organised! Be prepared and avoid unwanted stress by checking out our list of tips to get you ready for moving day.
What is the UK Inflation Rate?
27 Jun 2023
Inflation simply put, is the increase in the price of something over time. The Office for National Statistics (ONS) tracks the prices of hundreds of everyday items and these items are updated to reflect shopping trends.
Debt Consolidation into a Mortgage
20 Jun 2023
We are often asked if it's good advice to consolidate “unsecured” debt (credit cards and loans etc) into your mortgage, the answer is, sometimes.
Parking Rules Explained
16 Jun 2023
When you’re looking to buy a home, and you own a car, you ideally want to know the rules on parking in the area. Parking rules can be confusing, even for the most experienced of drivers! This is why we have written this blog to help you.
Sources of Deposit to Buy a Property
6 Jun 2023
There are several potential sources you can consider when it comes to getting together a deposit to buy a property. Providing proof of the source of your deposit is a key requirement in the application process and will need to be given to both the lender and the solicitor.
What is a Mortgage Prisoner?
26 May 2023
Mortgage Prisoners are people who are unable to switch mortgages to a better deal, despite being up-to-date with their mortgage payments.
More information
Trusted by
