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:

For more information speak to a mortgage adviser on 01628 507477 or contact us .

Your home may be repossessed if you do not keep up repayments on your mortgage.

There will be no fee for Mortgage Advice. There may be a fee for arranging a mortgage. The precise amount will depend upon your circumstances, but we estimate it to be £399.

Mortgage Required Ltd, Finance House, 5 Bath Road, Maidenhead, SL6 4AQ is authorised and regulated by the Financial Conduct Authority reference 573718 at www.fca.org.uk.

The Financial Ombudsman Service is an agency for arbitrating on unresolved complaints between regulated firms and their clients. More detail can be found on their website: www.financial-ombudsman.org.uk

Call: 01628 507477