Mortgage Intelligence update: Are your clients considering the limited company option?

With changes in tax relief for landlords just around the corner, Head of Mortgages and Insurance Stephanie Charman takes a look at why some are considering the much-publicised limited company option.

With rates holding low at 0.25%, investing in property could still be a good idea for many. This is despite the tax changes that are due to begin from April 2017, at which point the tax relief that landlords of residential properties receive for finance costs will start to be restricted to 20%. This change will be gradually phased in to be fully in place by April 2020.

So why limited companies?

Limited companies set up for the sole purpose of buying and letting property, will not be affected by the upcoming changes. That’s why many landlords are considering setting up limited companies to mitigate the personal impact. As this demand for limited company loans increases leading up to April, some lenders have updated their product ranges to cater for this emerging demand.

Research from leading buy to let specialist lender Kent Reliance has revealed that more landlords are already moving their buy to lets into limited companies. In fact, the lender revealed that over 100,000 buy to let mortgage loans were issued for limited companies before December 2016. This is double the figure of the whole of 2015, suggesting that more and more people are considering the option.

But is limited company the right choice for your client?

There is no easy answer, although it may be a possible solution for some circumstances. They may be considering using the limited company strategy whether they are a professional landlord, an investor with a portfolio or even looking at purchasing their first buy to let property.

Although there is no way to avoid the changes in stamp duty on second homes, setting up a limited company and becoming a corporate entity may indeed mean avoiding the changes in tax relief. But this is a complicated area and these tax changes will often affect each landlord differently. That’s why talking to you about their mortgage needs and seeking tax advice from an accountant, will help prepare your clients for any decision on their buy to let investment.

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