Despite increasing rules, regs and tax changes, the numbers would suggest that plenty of landlords are still looking to grow their property business.
A recent survey by brokers Mortgages for Business suggests 48 per cent of landlords want to expand, and that’s a big climb from the 41 per cent figure recorded in May 2016. When coupled with data that shows a doubling in the proportion of borrowers choosing a five-year, fixed-rate mortgage, the results indicate an increasingly long-term approach to property.
The figures make sense – the income-tax changes are deterring some investors, but those who have chosen to remain are becoming more serious and a lot are heading down the route of incorporation.
If you’re considering this route, take advice from a tax specialist because there are a few things to be aware of. Perhaps the most significant is the fact that you can’t simply transfer an existing buy-to-let mortgage to the new company.
In essence, you and the new company are separate entities and the company must buy the property from you at a fair market price and pay stamp duty. You, personally, may have to pay capital gains tax on the proceeds of the sale.
There’s also the issue of how the newly incorporated business will fund the purchase. You’ll redeem one mortgage and the company will take out a new one, with entirely different terms, based upon commercial risks and lending rates. It won’t surprise you to learn that they tend to cost more than mortgages granted to individuals. So, shop around.
And in what might seem like an unfair twist, the commercial mortgage lender will most likely want to take a close look at your personal finances. In one sense you’re a separate thing to the business, but you’ll be the one who’s required to put up security.
It’s worth knowing that your experience as an individual property investor should stand you in good stead with a commercial lender – if your credit’s good and your tax affairs are in order. Providing you’re not planning a massive overnight expansion or a drastic change in your type of let, you should be able to secure a deal.
Our message is to take advice and adopt a business-like approach if you’re planning to get a limited company property business off the ground. It could be a demanding journey at the outset, but the statistics suggest you won’t be the only one making it.
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