Buy-to-let mortgages have been in the news a lot lately. Seen by many landlords in the last few years as a great investment opportunity, recent changes to buy-to-let tax relief have now left a number of individual landlords wondering whether it’s worth it. Yet renting still remains an attractive option for some house-hunters, and buy-to-let can be a sensible investment opportunity for landlords.

Limited companies are not affected by the changes to mortgage interest tax relief, and many landlords are now setting up limited companies to own the properties they rent out. So, is this a good idea?

Yes … and no. It really depends on your personal circumstances. Let’s look at some of the main pros and cons:

Advantages

• Higher tax relief - under current legislation, limited companies will pay less tax than individual landlords
• Dividends - you can potentially take up to £5,000 as tax-free dividend income
• No income tax when investing profits to acquire further properties - corporation tax is about half the higher income tax rate
• Personal funds can be drawn back out of the company - for example, mortgage deposits could be drawn back by way of a director’s loan

Disadvantages

• No Capital Gains Tax allowance on sales - individuals can benefit from a Capital Gains Tax allowance (currently £11,100) when they sell a property
• Additional costs - running a limited company incurs extra costs, such as accounts preparation and filing
• Higher mortgage rates - many lenders charge companies more than they charge individual borrowers
• Less choice - fewer lenders offer mortgages to companies

Transferring existing properties from individual ownership to a limited company can be complex and costly; but it can be done.

Much depends on your current circumstances and your future ambitions. The best thing to do - as with any mortgage issue - is to seek professional advice.

James

BB Mortgages provides specialist buy-to-let mortgage advice to landlords. For advice, call us on Newark 01636 674455