Mortgages for landlords – what’s changed?

Should landlords use stamp duty holiday to transfer to limited companies?

As the buy-to-let industry continues to professionalise, with more landlords than ever buying through limited companies, the new stamp duty threshold could provide an opportunity for many.

The way property investors operate in the UK housing market has changed a lot in recent years. The government has introduced various tax and regulatory updates which have changed the way landlords can make profits. Many have therefore found new ways of running their investment properties to continue to achieve success.

One big change is in the number of buy-to-let landlords operating through limited companies. According to a poll from property investment group Seven Capital, less than one in 10 landlords actively invest as individuals.

The survey found that as many as 42% of landlords invest through a limited company. A further 30% said they are planning to use a limited company structure in the future, while 18.3% said they would like to but aren’t sure how.

Weighing up the pros and cons

In line with these figures, there are now growing numbers of resources available for professional landlords. The mortgage market, while slow to begin with, is also catching up. Greater numbers of specialist lenders now offer more products geared towards limited company structures.

There are, of course, pros and cons to operating as an individual rather than as a company. Buying an investment property through a limited company can make it more tax-efficient, which is a major advantage. You can read more about the various benefits and considerations in this article.

However, the perceived hassle of setting up as a company may put some people off. Many accidental landlords, for example, only own one property that they rent out. To transfer this property into a limited company structure, you would more than likely need to pay stamp duty on it. This is because the limited company is essentially buying the property from the original owner. In this instance, it is important to weigh up any tax savings with the outlay of stamp duty.

Professionalisation more appealing than ever

Since Chancellor Rishi Sunak announced a “stamp duty holiday” until March 2021, buyers have been rushing to the market. Properties worth up to £500,000 are currently exempt from the property tax, meaning savings of up to £15,000 per purchase. For second homes and property investments, the new rules apply although buyers will still need to pay the 3% surcharge.

Hamptons International says that the average buy-to-let investor could save £4,270 when buying a property under the new threshold. This is a major saving, and will certainly affect many landlords’ profit calculations.

When looking specifically at landlords with existing properties which they own as individuals, the saving becomes more significant. For those who had been reluctant to transfer properties, now could be a good time.

Alan Cleary of OneSavings Bank comments: “Landlords could save substantial amounts by transferring their properties into a limited company during this short window of opportunity.”

However, he cautions: “When it comes to specific tax matters and seeking advice, we encourage brokers to ensure their landlord clients have sought independent tax advice from a professional who is suitably qualified and can advise them on all possible situations.”

At BuyAssociation, we have a huge range of property investment opportunities below £500,000. We can also put you in touch with our limited company specialist partner who can give you independent advice. Get in touch to find out more, or sign up for free for early access to our projects. 

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