Only a few years ago, with property prices buoyant and on the up, Buy-to-Let (BTL) was a popular investment.  You secured a decent mortgage against a property with the view to renting it out and made the repayments together with a good profit for the rental gained. But move things on a few years and a slew of new taxes aimed at cooling the BTL market have certainly dampened the market and research shows that the number of new landlords getting mortgages has plummeted by 60 per cent in the past decade.

When buy-to-let was at its peak in 2007, around 183,000 mortgages were approved to landlords looking to invest in new properties each year, according to the trade body UK Finance.  New figures suggest the number of buy-to-let mortgages given out in 2018 plunged below 70,000, making BTL a less than attractive, and encouraging first time buyers in place of multiple-property-owning landlords.

The new measures put in place by the Government started with an extra 3 per cent stamp duty charge for anyone buying a property that was not their main home from April 2016. Private landlords were then also hit existing landlords’ profits with a series of stringent new tax rules. Buy-to-let investors could previously take 10% off the income tax they paid on rental earnings for so called ‘wear and tear’ to their property, but the new rules made this a lot more difficult to achieve.  Buy to let was suddenly a lot less of a sure bet than it had been.

But people are infinitely resourceful, and while BTL wasn’t so attractive, there were still ways that serious investors could make a good profit, particularly if it is owned and run through a limited company.  This is borne out by the fact that in 2000 there was only 5,000 Limited Companies set up for Buy-to-Let, but by 2017, around 35,000 such companies were established.

The advantages of operating a BTL through a limited company include taking advantages of higher tax relief not available to individuals, and there are no income tax issues when reinvesting profits.  Furthermore, personal funds can be drawn back out of the company without problem, there are potential Personal Tax savings, and it is easier to initiate a change of ownership since the company and not the individual owns the property.   

Creating a limited company as the owner of a property has significant advantages that can potentially bypass many of the Governments measures, which are aimed at individuals. However, that doesn’t mean that there aren’t disadvantages to running a BTL property in this way, such as:

• There is no Capital Gains Tax (CGT) allowance when the company sells a property.
• Generally higher mortgage rates due to increased work.
• Higher legal costs for the same reasons.
• The releasing of equity is more difficult as the property – and any equity – is owned by the company and not the individual.

Buy to let is still a reasonable investment, but running it through a limited company can have advantages, but it is not all plain sailing and there are significant disadvantages too.

If you are considering a buy to let mortgage, come and chat to us at Grange Mortgages, and see how we can help you.