The buy to let market has recently undergone some major changes. Most notably, the reduction of buy to let tax relief and the new 3% stamp duty surcharge. The tax relief reduction ends the ability of landlords to deduct all mortgage interest from profit. This will impact higher-rate tax payers profits. Basic-rate taxpayers liability will remain the same but the new profit calculation could push some into the higher-rate band.
Wear and tear relief has also changed. Landlords can no longer write off 10% profit per year for notional wear and tear. Instead, they can only claim for costs incurred and must provide receipts.
In 2016, the government introduced a 3% stamp duty (SDLT) surcharge on buy to let purchases. This has significantly reduced landlords profit margins.
Impact of buy to let changes on limited companies
The stamp duty surcharge applies to individual and companies. However, reduction of buy to let tax relief is not applicable to companies. This had led to a surge in limited company mortgage applications from landlords trying to bypass the new tax regime.
HMRC will consider any transfer of ownership of a property as a sale, meaning a potential capital gains tax liability.
Some lenders have responded to the demand for limited company mortgages. Compared to standard buy to let products there is restricted availability and tougher acceptance criteria.
Landlords should seek professional financial advice before going down the limited company route as there could be tax implications.
Lenders have tightened affordability rules for landlords with four or more mortgaged rental properties. Lenders will now look at things like amount borrowed over your whole portfolio, landlord experience, total rental income and other income. They may also ask to see a business plan and evidence of assets and liabilities, and cash flow.
How we help buy to let landlords
Lillywhite Fosters work hard to understand our client’s needs. We will always work hard to match your needs to the best possible result.
Possessing an excellent knowledge of the buy to let market while using state of the art mortgage sourcing software enable us to quickly narrow down the search for a suitable product.
Lillywhite Fosters have established and trusted relationships with most lending institutions and stay abreast of their product offers and criteria changes. As a result, we can provide a fast response.
So if you would like to make an enquiry or have any questions then please get in touch today.