Landlords with larger portfolios are increasingly moving to limited company status for new purchases, as restrictions to mortgage interest relief take effect.
According to Precise Mortgages, 64% of landlords with more than four properties who plan to buy this year have said they will use limited company status, while 21% will buy as individuals.
In comparison, only 17% of landlords with smaller portfolios of one to three properties said they would use limited company status, and 37% favoured buying as individuals.
The growing popularity of changing business structure to limited company status has been attributed to the phased reduction of mortgage interest relief.
This process is gradually eroding the tax relief landlords can claim on their finance costs, such as mortgage interest payments, and will replace it with a basic-rate tax credit by April 2020.
The tax change does not affect landlords operating as limited companies, who can continue to offset their mortgage interest against profits.
Alan Cleary, managing director of Precise Mortgages, said:
“The buy-to-let market is changing and the switch to greater use of limited company status is one aspect of the development underlining the increasing maturity of the sector.
“There are good reasons why limited company buy-to-let is dominating the purchase market and we expect that will continue to be the case this year and next.
“Brokers and customers, however, need expert specialist support when buying as a limited company or considering switching to limited company status as there are considerable costs involved.”
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