Landlords are being advised that they can move their buy-to-let properties to a limited company, in order to escape the three per cent stamp duty increase while keeping mortgage interest relief.
However, because the new stamp duty rates will come into effect on 1st April 2016, any landlords interested in benefiting from the tax incentives of a limited company should make the change before 30th March 2016.
A limited company structure provides landlords with the chance of applying mortgage interest relief on rental income in a personal capacity, which is particularly good for higher-rate tax payers.
To change the ownership structure, a landlord effectively has to sell any personally held property at market value, paying capital gains tax (CGT) so they can then buy it back as a company, also paying the stamp duty owed.
The short term costs involved are likely to discourage some landlords from making the change, but the long term advantages of using a limited company structure are worthwhile for serious investors.
Following the Government’s announcements regarding changes to the amount of tax landlords will have to pay, high street lenders have started to tighten their lending rules to make it more difficult for aspiring landlords to secure a home loan.
Coventry Building Society, for example, has introduced tougher restrictions which will require potential borrowers to prove that they can cope if interest rates were to rise to 5.5 per cent, rather than 5 per cent.
The buy-to-let arm of Lloyds and other banks have also implemented similar rules.