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Buy-to-let: Landlords expected to set up companies to save tax

Landlords are increasingly expected to exploit a loophole in the law that allows them to avoid the Chancellor George Osborne’s hefty, punitive tax raid on rental properties, according to a leading mortgage expert.

Simon Bayley, commercial director at Foundation Home Loans’, expects to see soaring numbers of buy-to-let investors set up companies to acquire homes in order to escape a cut in tax relief for private landlords from next year and the recently introduced hike in stamp duty for those acquiring second homes and rental properties.

He told the Financial Times that he expects to see more than 75% of mortgaged buy-to-let acquisitions going through a limited liability company (LLC) structure over the next 12 months.

He also believes that many landlords may consider transferring their existing properties to a LLC.  

He said: “If the plan is to own the property for a long time and the focus is asset growth then it would generally be worth transferring into a LLC structure, which can be looked at with a simple calculation to give a good indication as to what would work best for a landlord’s specific circumstances.”

With more professional portfolio landlords transferring ownership to corporate structures, Bayley is urging mortgage brokers to catch up fast with the changes and become fully conversant with the rules to enable them to offer sound advice.

For instance, advisers need to be aware that a transfer to an LLC structure would become a new transaction and therefore stamp duty and capital gains become due, so each case would have to be looked at on its own merits.

With more professional portfolio landlords transferring ownership to corporate structures, Bayley is urging mortgage brokers to catch up fast with the changes and become fully conversant with the rules to enable them to offer sound advice.

For instance, advisers need to be aware that a transfer to an LLC structure would become a new transaction and therefore stamp duty and capital gains become due, so each case would have to be looked at on its own merits.

What’s more, he also points out that if landlords are using income from today’s rental they may require help calculating if the capital outlay is affordable for them, even if the long term benefits suggest a LLC structure.

Mike Richards, director of London-based broker Mortgage Concepts Associates, agrees with Bayley’s 75% projection, especially as he is part of a growing number of brokers now recommending that all new buy-to-let purchases are made under corporate structures, which continue to benefit from relief on mortgage interest payments.

He commented: “I think that gradually most lenders who are in the sector will offer this and the premium lenders charged for limited company mortgages of around 0.5% will disappear.

“I think that you will still get a percentage of people who will mistrust the limited company route, but this is really the only way to go for the future of the buy-to-let market.”

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