Kent Reliance finds demand for limited company B2L lending doubles

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  • The value of applications for limited company mortgages rose to almost a third (32%) in December 2015, up from 18% in July
  • EY, in partnership with Kent Reliance, release a new report highlighting who is affected and how by changes due to be introduced April 2016

As demand for limited company finance strengthens following the restrictions to mortgage interest tax relief available for buy to let announced in July 2015, Kent Reliance has commissioned a new report to educate landlords on the tax implications of incorporating.

Analysis of Kent Reliance’s data shows that the value of mortgage applications made for limited companies had almost doubled in the second half of 2015, rising from 18% in July to 32% in December 2015.

With demand for incorporation rising following the tax changes, landlords may find themselves considering to enter a limited company holding without clear knowledge on the implications of doing so.

 Kent Reliance have commissioned EY to produce a report which fully details the recent changes that affect landlords, and provides guidance and examples for property investors thinking of making the switch.

 The report demonstrates how profits could differ when the changes take effect (2020/21), and the need to get advice before undertaking these changes:

 

·         An individual landlord owns a Buy to Let property worth £350,000, receives annual rents of £17,400, has expenditure of £1,200 and finance costs of £10,000, along with a salary of £45,000. When the new rules are introduced they will pay £4,480 tax on rental profits personally compared with only£1,101 tax due (after dividend payment) if they owned the properties via a company.

·         An individual landlord owns four Buy to Let properties worth £1.8m, receives annual rents of £72,000, has expenditure of £4,000 and finance costs of £50,400, along with a salary of £60,000. When the new rules are introduced they will pay £17,120 tax on rental profits personally compared with only£6,115 tax due (after dividend payment) if they owned the properties via a company.

·         In 2020/21, an individual landlord has a Buy to Let property portfolio worth £5.4m, receives annual rents of £189,000, has expenditure of £7,500 and finance costs of £129,600 with no other income. When the new rules are introduced they will pay £41,898 tax on rental profits personally compared with only £10,884 tax due (after dividend payment) if they owned the properties via a company.

 John Eastgate, Sales & Marketing Director for OneSavings Bank, comments:

“The rush to incorporate doesn’t yet show signs of abating, but it’s vital that landlords looking to take this option fully understand the implications of doing so. For many, incorporation will bring down tax bills, but it is not a one size fits all approach. For instance, landlords will need to factor in additional transactional and administrative costs if they do make the move.

 “We’d urge any property investor to seek professional advice from a suitably qualified professional before any decision. This is why we have partnered with EY to help educate those wanting to convert into limited company ownership. By offering this aid to brokers, we are enabling them to add value to their client relationships and help willing landlords see if it is the correct approach for them.”

 To respond to the clear demand for limited company finance, Kent Reliance for Intermediaries recently announced a new policy allowing landlords who wish to transfer their existing buy to let property from their individual name into a company or limited liability partnership structure.

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