During October to December 2016, 69% of all new Buy to Let purchase applications were made by Limited Companies according to Mortgages for Business.
The percentage of remortgage applications in company names also increase to 31% in Q4 up from 23% in Q3 last year.
The total number of lenders offering Buy to Let finance to limited companies remained stable at 14 and the total number of products available rose slightly from 195 in Q3 to 198 in Q4.
This is despite the fact that lenders are still charging higher rates of interest for companies, often 1% extra.
I think lenders will very soon be forced to bring rates into line as competition amongst lenders increases.
The main driver has been the Restriction of Mortgage Interest Tax Relief
2017/18 75% of the interest can be claimed in full and 25% will get relief at 20%
2018/19 50% of the interest can be claimed in full and 50% will get relief at 20%
2019/20 25% of the interest can be claimed in full and 75% will get relief at 20%
2020/21 100% will get only 20% relief
For a 20% tax payer that’s fine but for higher rate taxpayers its a disaster that will lead to them paying a lot more tax
These rules will not apply to Companies, Companies will continue to claim full relief.
Companies have many other advantages too:
- Stamp Duty on Shares is 0.5% so if you own each property in a separate company you can sell the shares rather than selling the company
- Holding properties in separate companies makes it easier for lender to take a charge over the business assets
- Companies are better for Inheritance Tax Planning enabling the company shares to be given away in stages
- Corporation tax is 20% and falling which means if you want to grow you portfolio you will retain more of the profit for re-investment
Companies have to be the way forward for investors.
Ask your accountant!
