Buy To Let

How Buy To Let Has Changed

The way landlords that own their properties on a Buy To Let (BTL) basis, as individuals or couples, has cahnged in the way they need to declare their rental income.

Meaning most will see their tax bills rise significantly.

While borrowing money through a Buy-To-Let mortgage was once a major tax advantage, it’s no longer the case. 

As of April 2020, you are no longer able to deduct any of your mortgage expenses from rental income to reduce your tax bill.

Instead, you’ll receive a tax credit, based on 20% of your mortgage interest payments.

This is less generous for higher-rate taxpayers, who effectively received 40% tax relief on mortgage payments under the old rules.

The new system will potentially increase many landlords tax bills, unless the property is company owned.

Limited Company BTL

The change in tax relief only affects private landlords, who own their properties as individuals or couples, rather than through a business.

In theory, by setting up a business that owns their rental properties, landlords will be able to continue to declare rental income after deducting the mortgage.

However, if you’re considering doing this.  It is vital to research thoroughly, as even with this tax saving you could end up far worse off.

There are a few reasons for this, but the main one is that mortgage rates for businesses are more expensive than for private landlords, which could cost more than you’d save in higher tax relief.

You’d also need to pay an extra round of stamp duty when you transfer ownership of the property to the business.

If you incorporate your taxes they will become more complex.  Instead of paying income tax on your rental income, you’ll need to file taxes for your business, and pay corporation tax on your profits.

To receive the rental income, you’ll need to pay yourself a dividend. This will be taxed as income, but at a lower rate than if you’d received the income directly.

Basically the Buy-To -Let market has become significantly more complex .

I heavily suggest you get in touch with a Specialised Broker like myself, who can advise you on your best way forward.

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