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Deduct mortgage expenses from rental income to reduce their tax bill.

Research shows rise of limited company landlords

By Maurice Shasha  //  Thu 4th April 2019
By April 2020, landlords will be unable to deduct mortgage expenses from rental income to reduce their tax bill. Instead ...
Two-thirds of landlords, with more than four properties, plan to use limited company status for future investments, new research has revealed. In addition, 17% of landlords, with smaller portfolios, of three properties or fewer, are also looking to buy in this way.

The research, by specialist lender Precise Mortgages, follows a change to mortgage interest tax relief rules, which has been gradually introduced since 2017.

By April 2020, landlords will be unable to deduct mortgage expenses from rental income to reduce their tax bill. Instead, landlords will be given a new tax credit.

The change does not affect limited company landlords, who are able to continue offsetting mortgage interest against profits.

Limited companies also pay corporation tax on profits of 19% instead of income tax, which, if charged at the higher rate, can be as much as 45%. Corporation tax is set to be reduced further, to 17% for the 2020/21 tax year.

According to Alan Cleary, managing director of Precise Mortgages: “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.”

However, he warns that anyone considering this route should seek professional advice. “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.”

Read more about this story on the Property Investor Today website.

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