Tax Efficient Investment Property BTL Mortgage

Darren Pescod, CEO of The Mortgage Broker LTD, offers his advice on a number of common questions and situations his clients face.

I am buying an investment property on a ‘buy to let’ – Should I buy this in my personal name or a limited company name due to all the tax changes?

This is a good question and the answer is far from a straightforward one. The buy to let market has seen many changes in the last couple of years. These include tax changes that are proving to be very harsh for many landlords.

Up until and including the tax year 2016/17, landlords could claim 100% tax relief pertaining to their mortgage interest. The full amount of interest could be deducted from the income they derived from renting out their properties. However, from April 2017 onwards, that relief began to be phased out. By the time the tax year 2020/21 arrives, there will no longer be any tax relief of this kind available. This has led many landlords to set up limited companies and to rearrange their businesses to reduce their tax liabilities.

Our first piece of advice would be to seek professional tax advice from a tax specialist or an accountant. The answer to your query may differ depending on the tax bracket you are in. If this changes, the best approach for you may also change. It is important to consider all possibilities and to fully understand the situation you are in before you decide whether to set up a limited company as a landlord or not.

The good news is that there are more mortgage deals around for limited companies today than was the case in the past. The lack of deals available meant that lenders could put higher margins on these deals – and therefore higher rates as well.

However, in recent weeks we have seen a drop in limited company mortgage rates. They have reduced in line with standard buy to let rates, which means landlords now have more choice than previously.

My advice would be to get a quote for your new mortgage for both scenarios, i.e. one quote for you as an individual and another for a limited company name. you can then discuss the options with your accountant to determine which route and ownership structure is best for you.

Darren Pescod