Landlords are setting themselves up as limited companies to avoid the government’s new buy-to-let rules that come into force next April.
Approximately 11 per cent of the UK’s landlords have established themselves as a limited company in order to pay the lower tax rate on their buy-to-let profits.
A further 25 per cent of Landlords intend to incorporate in the future according to data compiled by the Council of Mortgage Lenders and Association of Residential Letting Agents.
The corporate tax rate is currently 20 per cent dropping to 19 per cent next April and 17 per cent by 2020.
The rush to incorporate is partly due to tax reforms which will hit landlords from next April. Previously landlords could claim tax relief on up to 45 per cent of the interest on their mortgage payments. From April this will drop to 20 per cent.
This comes after the government scrapped the 10 per cent “wear and tear” allowance in April.
Landlords applying for buy-to-let mortgages under the banner of a corporate entity doubled this year compared to 2015.
While moving to a limited company will lower r a landlord’s tax liability, it is not without its pitfalls as incorporation attracts extra administration and accounting costs.
If you would like advice before purchasing a buy-to-rent property, get in touch with our conveyancing team.