Considering a Buy to Let Mortgage?

Everything you Need to Know About Buy to Let Mortgages

As a landlord, it’s more than possible for you to invest in a Buy to Let mortgage. You can do this through a limited company as opposed to doing it through your name if you want. If you aren’t quite sure how this could help you to save money on your tax, then simply look below.

What is a Limited Company Buy to Let?

A limited company buy to let is a mortgage that you can use to buy an investment property. It’s run through the company as opposed to being run through your name. Buying a property this way is cheaper for some, as the laws on taxation have made buying a property much more expensive. 2021 is going to be the very first full year where you cannot deduct your mortgage expenses from your income from a rental property. Instead of this, you will be given the chance to get a total of 20% tax credit on any interest payments.
Landlords were once able to offset the mortgage interest payments from their rental income but in 2015, this was phased out by the government. In 2018, the tax relief you were able to claim dropped to 75%. In 2019, it plummeted to 25% and now, it’s been removed entirely. The 20% tax credit rate is not as favourable to any taxpayers who pay the additional rate.

To mitigate the rules, landlords are now setting up limited companies when purchasing a rental property. You’ll be subjected to a corporation tax of 19% (current rate) as opposed to having to pay the higher income tax rate.
What are the Tax Rates for Limited Companies and Buy to Let?

The government increased the tax allowance for capital gains in 2020. It went from £12,000 to £12,300. If you are selling another property, you get to earn more and have it be tax-free. Capital gains tax is higher for landlords, though. It’s 18% for those who pay the basic rate and 28% if you’re an additional rate taxpayer.

Pros and Cons of Buying through a Limited Company

Some of the pros include:
• You could save money in tax payments
• You can keep your finances separate
• You can claim your mortgage interest as an expense

Some of the cons are:
• There are additional costs including filing your annual accounts
• You’ll need to deal with extra paperwork
• The mortgages can be more expensive

Pros and Cons of Buying as an Individual

If you want to invest in a buy to let property as an individual, then you’ll be glad to know that there are any benefits.

Some of the pros are:
• Long-term investment
• The ability to generate an income
• Tax relief for covering renovations and furnishings

Some of the cons include:
• Tax liability could be more when compared to an LTD buy to let
• Rental income could push you into a higher tax bracket
• Less profit potential when compared to an LTD company

Tax Relief for Buy to Let as an Individual

Up until 2016, landlords could easily deduct any mortgage interest or allowable costs from their income. This was done before they calculated their tax liability. From April 2020 however, the finance costs were restricted to the basic rate of income tax which is now 20%. Relief will be given as a reduction in liability as opposed to taxable income. These changes mean that your taxable income will in fact rise, and it will impact your tax bill. This is especially the case if you’re an additional rate payer.

If you are considering buying a property to rent or renewing your Buy to Let Mortgage, then please contact us on 0800 001 6515 to see how we can help you.