Tax Shelter Landlord BTL Mortgages

Tax Shelter Landlord BTL Mortgages.

In the summer budget 2015 Chancellor, George Osborne, announced that expenses relief for buy to let property investments would be restricted to 20% basic income tax rate relief.

What this means is that higher rate taxpayer landlords will no longer be able to offset property expenses (including mortgage interest) in full at their highest rate of tax and will be restricted to 20% relief with effect from April 2016.

That set us and many other financial services firms thinking.

We believe an alternative option now is for buy to let landlord property investors to consider property ownership within limited company structures or special purpose companies. The corporation tax rate for a small trading company is just 20% and now that the overall corporation tax rate for all companies is also falling this now means that it may be advantageous for you to own buy to let property within a corporate structure thereby having the ability for all expenses to be offset against income with 20% relief.

If the director of the limited company (landlord) then wishes to declare a dividend, the tax rates on dividends would be less than higher rate tax anyway.

This week, Paragon Premier Mortgages has launched a range of lifetime tracker mortgages for buy to let property landlords where their properties are owned within a special purpose company. In addition, loan to values are up to 80% meaning that similarly to private residential landlord buy to lets, only a 20% or 25% deposit may be required.

A word of caution on this

There is currently a yearly tax payable on residential properties that are owned within corporate envelope structures. The Annual Tax on Enveloped Dwellings (ATED) is a yearly tax on properties worth £0.5 million or more. This means that if you decide to go down the route of company ownership for buy to let properties you should be careful of the value of the property and in addition be aware that the government, at any time, could reduce the threshold at which ATED is levied.