introducing steve mears – independent financial advisor the money man
Considerations of Limited Company Buy-To-Let (BTL)
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When discussing BTL with clients, we always 1, refer them to an accountant and 2, Talk about using a Limited Company for the purchase. Of course, there are pros and cons to purchasing a buy-to-let in a limited company versus under a personal name, but the choice depends entirely on the individual circumstances of the borrower.
As an experienced mortgage broker, with links to commercial brokers, we will be able to guide you on your options and give you more insight and information on what will be the best option for you. Why purchase a BTL using a limited company? In 2017, the government set out changes in the Budget, including a reduction in the amount of tax relief available for interest on BTL mortgages, being gradually reduced until only basic rate, 20% is available (by 2021). This means that landlords will pay tax on their entire rental income and will be unable to deduct the cost of mortgage interest. Higher rate tax payers will therefore pay a lot more tax and possibly to the point where they make no profit. This has led to an increase in the number of landlords purchasing BTL investments in a limited company, due to the fact that limited companies pay corporation tax, currently at 19% but reducing to 17% in April 2019. Differences in lending As a limited company is a separate legal entity, normally the lenders stress testing is more favourable, and they tend to relax this when it comes to rental calculations. (Usually rental income must cover 125% of mortgage payments, whereas this is 145% when lending is completed in a personal name). However, mortgage costs are often higher for a limited company and additional stamp duty costs need to be taken into consideration. Owners of more than four buy-to-let properties (portfolio landlords) will have to disclose all property details at end of September meaning that the portfolio will be assessed as a
whole and if one property performs less well than others this will affect the underwriting of the whole portfolio. Advantages • Mortgage interest tax relief • No tax on dividends up to £2000 • No income tax on retained profits allowing more funds to re-invest • Corporation tax is lower than income tax • Personal advances made to the Limited Company can be drawn back out of the company via Directors loans • Lenders tend to relax the stress testing when it comes to rental calculations Disadvantages • No Capital Gains Tax allowance when a company sells a property (individuals have £11,100) • Administration costs such as preparation of company accounts, filing at Companies House, initial set up costs, accountants’ fees •Possible higher mortgage rates and reduced number of lenders If you’re interested in a Limited Company BTL please contact us on 0117 9734300, email us at info@stevemears.com or pop into our office on Alma Vale Road to make an appointment.
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Please remember YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE .
to contact Steve, email info@stevemears.com , telephone 0117 973 4300 or to find out more about Steve Mears Independent, visit www.stevemears.com
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