Limited company buy-to-let mortgages 'could be next mis-selling scandal' - 11th August 2017

The clamour for landlords to take out loans through limited companies to cut tax bills could follow PPI as the next big mis-selling scandal, which we have been saying for over 12 months now...

A study carried out by mortgage broker Private Finance showed the higher rates for limited company borrowing means some investors could see their income drop by £1,000 a year compared to personal borrowers.

According to specialist broker Mortgages for Business, 77 per cent of applications for buy-to-let mortgages in the first quarter of the year had been made through limited companies.

This rise in popularity is largely due to the changes to mortgage interest tax relief. Previously, landlords could claim 100 per cent relief based on their marginal rate of income tax, but new rules will see this being scaled back.

By 2020 tax will be charged on all income and all landlords will get a 20 per cent tax credit instead, which will impact profits for those taxed at the higher and additional rate.

However, these rules donít apply to buy-to-let landlords converting to a limited company structure, plus profits are subject to lower corporation tax rather than income tax.

At present, limited company landlords can subtract mortgage interest costs from their rental income before calculating how much corporation tax is due.

However, not everyone will benefit from using a limited company to protect profits from the governmentís tax clampdown. Private Finance research reveals a limited company borrower can expect to pay 3.4 per cent for a two-year fixed rate at 75 per cent loan-to-value, compared to 1.92 per cent for a landlord borrowing in their own name.

If you already have several properties and want to repurchase them via a company there are much greater costs to consider like stamp duty and capital gains that wipe out the advantage of a limited company strategy for most.

If you think youíve been mis-sold a limited company buy-to-let mortgage or have received bad advice about switching to a limited company structure, you can complain. If youíre unhappy with the response from the mortgage provider, you can then take your complaint to the Financial Ombudsman Service.

SW&A can give you sound and refreshingly jargon-free advice if you are thinking of setting up a limited company. Call our friendly team on 01905 622202.

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