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
We look at why mortgage rates increased following the Bank of England's choice to reduce the bank rate, and should you fix now?
UK 2024 Autumn Budget: Housing
17 days ago
On 30th October 2024 the Chancellor, Rachel Reeves delivered the Autumn budget which we had previously been warned would be “difficult”. Below we have summarised the main housing points.
Talking about money with kids
24 days ago
In an increasingly cashless society, money is an intangible concept for children to grasp. In the days of coins and notes, kids could see money as something physical you require to purchase goods and services.
In order to help teach your children about money, we have listed some tips below;
Labour Autumn Budget Predictions: Housing
18 Oct 2024
The UK’s chancellor, Rachel Reeves will deliver the Labour government’s autumn budget at the end of the month, we take a look at what could be announced in relation to housing.
Recent research from Halifax has revealed the most sought-after locations for first time buyers in Britain.
The data which was taken from the Halifax House Price Index looked at areas outside of London where those looking to purchase their first property were buying. Despite high property prices and increased rates, these first time buyer hotspots have remained popular.
How can I look after my mental health?
7 Oct 2024
Taking care of your mental health means looking after your emotional, psychological, and social wellbeing. There are several ways we can practice self-care that will help to improve our physical and mental health. This can help to reduce our risk of illness, manage stress, and boost our energy levels!
First Time Buyer to do List
4 Oct 2024
Buying your first home is very exciting but it can also be very daunting which is why we have set out a “to do list” to help you get started.
Bank of England Holds Base Rate at 5%
20 Sep 2024
With UK inflation remaining at 2.2% which is slightly above the Bank of England’s 2% target, the decision was made on Thursday 19th September to keep the base rate at 5%.
More information
Trusted by
