A record number of people have set up buy-to-let limited companies in 2020 despite problems with the housing market caused by the pandemic. Landlords created 41,700 buy-to-let firms last year, a 23 per cent increase from 2019.
The number of buy-to-let companies has more than doubled since 2016 following the government’s introduction of tax changes that stopped landlords from being able to claim relief on their mortgage interest. Limited company directors are still able to claim tax relief on their mortgage interest, which is inspiring some landlords to set up companies to hold their buy-to-let properties.
The Chancellor’s introduction of a stamp duty holiday on properties worth up to £500,000 has also given landlords a potential saving of up to £15,000 when buying, although they still have to pay the second property surcharge of 3 per cent.
Five years ago, only a handful of lenders offered limited company mortgages now there are 728 limited company mortgages on the market, according to the data firm Moneyfacts.
However, some high street mortgage lenders still do not offer these types of mortgages because they do not think there is enough demand or because the loans require more underwriting than a personal buy-to-let.
The lenders that do offer limited company mortgages tend to charge more, averaging 3.71 per cent for a two-year fixed deal, compared with regular buy-to-let loans at 2.91 per cent.
While it is possible for limited company landlords to offset the interest through tax relief, they could end up paying more due to the higher interest rates and fees.
If you are an individual landlord who wants to move your properties into a limited company structure, you could pay stamp duty twice on the same property (once when you bought it and again on the date you transfer). You also have to be aware of corporation tax and capital gains tax if there has been an increase in the value of the property since you bought it.
While there are pros and cons for both type of buy-to-let property ownership, it is best to weigh up which structure is best for you. Often it is best to get advice from a solicitor or accountant before you take the leap into buy-to-let ownership.