Increasing number of landlords looking to avoid BTL tax charges

The decision by the government to introduce several measures to limit the growth of private landlords has raised concern that the buy-to-let boom of recent years may be coming to an end.

The rule permitting landlords to offset their mortgage interest against tax is due to be withdrawn over the next three years.  Once this tax relief has been phased out, landlords will only be allowed to claim a basic tax deduction of 20%, which will in turn eat into their rental returns.

The National Landlord’s Association (NLA) have predicted that approximately 22% of 2 million landlords in the UK could move up a tax bracket once the changes to taxation are implemented.

The rise in mortgage lending to BTL landlords via limited companies suggests investors are beginning to treat their mortgage interest as business expenses by creating limited companies to manage their rental portfolio.

The NLA claim that in the last 18 months the percentage of landlords proposing to take out commercial loans to fund property purchases has nearly doubled, from 10% in July 2015 to 19% at the end of 2016.

The rise in the number of landlords seeking commercial loans coincides with the 500% rise in the percentage of landlords who have set up a limited company in the past year.

Chief executive officer at the NLA, Richard Lambert, commented: “Over the last year more than one hundred thousand landlords have formed a limited company in order to beat the tax changes, and this overlaps with an increasing intention to look to commercial loans to fund future purchases.

“While commercial loans are available to non-incorporated landlords they tend to be a source of funding more commonly used by limited companies looking to expand their property portfoilos, so we’d expect to see this trend develop as the year plays out.

Lambert advised that the Treasury were concerned by the fall in tax revenue as a result of landlords incorporating and said the chancellor had hinted at a review into this matter during his Autumn Statement.

Landlords who have not yet incorporated are subsequently being advised to wait to see if a consultation is launched in the upcoming Budget next week before making a decision.

Full article available on: LandlordTODAY:

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