Buy-to-let landlord tax changes trigger surge in move to incorporate

Recent changes to the tax treatment of buy to let landlords announced at the Budget and Autumn Statement have triggered a surge in the numbers incorporating as companies and are creating a spike in purchase activity, according to research from Kent Reliance

The lender’s third Buy To Let Britain report indicates that changes announced in the Budget, lowering the tax relief for mortgage interest payments for landlords from April 2017, has already caused an increase in the number of landlords seeking to incorporate.

Kent Reliance says it saw an immediate increase in applications from limited companies after the July Budget, with an average of 5,000 applications each month, while by September, applications were up by 213% compared to the previous year.

A quarter of all buy to let mortgage finance demand is now through limited companies, up from 13% a year ago.

It calculates that for the whole buy-to-let market this means 56,800 buy-to-let loans will be issued to companies in 2016, an increase of over a fifth compared to the estimated total for 2015 (46,700) and up 90% on 2014’s total of 29,990.

Following the autumn statement, the Treasury is consulting on whether corporate entities with over 15 properties would be excluded from the newly announced stamp duty surcharge, and Kent Reliance says its research indicates an exemption that will add further incentives for professional landlords to incorporate, boosting demand.

The report also suggests that as a result of the 3% stamp duty charge announced at the Autumn Statement on buy-to-let and second homes, landlords are likely to put rents up.

The average value of a buy to let property stands at £220,726, so the new tax would represent an additional upfront charge of £6,622. 

If a landlord held a property for 10 years, spreading this cost over the duration would represent an increase in rent of £55 per month for a tenant, Kent Reliance calculates.

Andy Golding, chief executive of OneSavings Bank, which trades under the Kent Reliance and InterBay brands in Buy to let, said: ‘The Chancellor has trained his sights on buy-to-let, given the sector’s rapid rise in value, but the changes to the tax treatment in the last six months will bring unintended consequences.

‘First, the rush to put properties inside a limited company will be sustained, especially if larger scale investors are indeed exempted from the new stamp duty surcharge. Secondly, the buy to let market will see activity hit overdrive between now and April as landlords seek to beat the stamp duty deadline.’

The report is here

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Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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