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
The government has announced plans to make buying or selling a home cheaper and quicker with what is being called the “biggest shake-up to the homebuying system in this country’s history.”
More borrowers using equity release
16 days ago
Almost one in five equity release mortgages are now taken out to provide financial support to family.
Buyers purchasing properties sooner
18 days ago
According to industry data, the expected wait for those looking to buy a property has dropped from just over 11 months to less than six months.
It is common for your first mortgage payment to be higher than your subsequent monthly payments for two reasons.
What to do just before you get your keys
23 days ago
Firstly, a big congratulations, you’ve now exchanged contracts! After weeks and months of waiting, you are about to move in. What should you do first?
The chancellor will deliver her second budget this autumn. Due to slow economic growth and high inflation, the government need to manage a £40 billion shortfall in public finances. There have already been reports about changes to taxes including income tax and capital gains tax.
Landlords could face a new tax this autumn
29 Aug 2025
The chancellor has advised that landlords could have another tax to pay this autumn as the Treasury decide whether to extend national insurance contributions to rental income.
According to a report in the Guardian, senior ministers have asked Treasury officials to look into a “proportional” property tax to see how it would work as an alternative to the existing stamp duty land tax on owner-occupied homes.
More information
Trusted by
