Landlords incorporating to avoid new tax rises
A mortgage firm specialising in buy to let products says lending to landlords set up as limited companies surged in the first quarter of the year to 38,000 – that’s more than the total lending to this sector in 2015.
The data, from Kent Reliance’s Buy To Let Britain report, suggests the number of loans to limited companies will come close to 100,000 this year; many of these companies have been set up in recent months as landlords have ‘incorporated’ in a bid to reduce tax liability following changes to the fiscal regime initiated by Chancellor George Osborne.
Borrowing through a company means investors are taxed at lower corporation tax rates and can offset finance costs against rental income; offsets of this kind are being heavily restricted for ‘old style’ landlords who have not set up companies.
Kent Reliance says rents are also rising as landlords seek to offset their higher tax bills; the lender says around 40 per cent of landlords expect to raise rents in the next six months, by 5.6 per cent on average, which represents around £49 for tenants.
Three quarters of the landlords who are increasing the rents say next year’s reduction in mortgage interest tax relief is to blame for rent rises.
The total rent collected by private landlords reached a record £53 billion in the past 12 months, up almost 10 per cent on the total a year ago, according to separate research by the Council of Mortgage Lenders.