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Limited company plans could cost landlords £1,000 a year.

  • Limited company plans could cost landlords £1,000 a year.

    Buy to let investors who choose to use a limited company to manage their portfolio could be £1,000 worse off a year, according to new research.

    The new analysis of landlords’ finances by mortgage broker Private Finance found that higher mortgage rates for limited companies could lead to landlords paying 3.41% for a two year fixed 75% loan to value deal, compared to 1.92% for landlords borrowing as individuals.

    There has been a surge in interest amongst landlords and buy to let investors in limited companies as concern spreads about the impact of Section 24.

    Many landlords have considered switching transferring their properties to a limited company in order to avoid massively inflated tax bills as a result of the abolition of mortgage interest relief on second homes.

    According to Private Finance, a landlord with a combined income of £46,010, £35,000 from a salary and £11,010 rental income, the average yield on a two bedroom house in the UK, will £36,194 in income after tax and mortgage payments.

    The same landlord purchasing through a limited company, however, would find their income after tax and mortgage repayments falling by 4%, or £1,369, to £34,825 as a result of higher borrowing costs.

    What about landlords who already own their properties?

    Reorganising an existing property portfolio into a limited company is likely to be just as prohibitively expensive as buying through one.

    Landlords reorganising their portfolios would find themselves incurring two significant tax bills, capital gains and stamp duty, likely leaving anyone with a small number of properties worse off than if they remained as personal investors.

    In fact, even larger landlords may find themselves better off remaining as personal investors. According to the findings by Private Finance, a landlord with five properties and £90,000 in total income as an individual could find themselves £4000 a year worse off, if they were adopt a limited company structure.

    Shaun Church, director of Private Finance, said: “The option to invest through a limited company has come under the spotlight recently as landlords look for ways to offset recent tax changes.  But landlords shouldn’t rush into this assuming it’s a safe bet for saving money.

    “Each investor is different and there’s no one-size-fits-all solution. Landlords should ensure they seek professional advice on how best to maximise their profits.”

    We can help.

    Landlords are facing the prospect of several years of deteriorating returns on their investments as a result of Section 24 phasing out mortgage interest tax relief, increases to Stamp Duty, the knock on effects of the proposed ban on letting agent fees and the capping of rental deposits proposed in the Queen’s Speech.

    It is important that landlords concerned about the impact of these changes on their finances get independent advice on how to proceed and at Landlord Debt Advisory, we have an expert team of property specialists who can help you.

    Contact us online at landlorddebtadvisory.com or by phone on 0161 222 4311 to book a consultation. 



    This article was posted in Negative Equity Landlords Section 24