According to new findings, Osborne’s recent tax reforms have sparked a surge in landlords buying property through a company in order to safeguard tax reliefs.
Mortgage applications via a limited company, made through the lender Kent Reliance, increased by 300% in September 2015, compared with the same month in 2014, representing the highest level on record.
Incorporation is one way landlords can avoid the cuts to tax relief on mortgage interest unveiled by the chancellor in his Summer Budget. These will be phased in between 2017 and 2020 and will limit the relief available to 20% for individual buy-to-let owners, down from as high as 45%.
With the stamp duty changes coming on top of earlier tax reforms, there is likely to be a surge of acquisitions made by landlords through limited companies. However, according to Peter Armistead of Armistead Property, incorporation is just one of many options available, to help landlords protect their profits.
“Landlords need to do a serious portfolio review and work out how the tax changes affect them and what options there are to save, or make more money. For example, remortgaging to get a better deal; renovating some old stock – these costs will be tax deductible; selling some properties; or increasing the rent.
“The traditional BTL model of using leverage to buy a property and hold it for the long term has taken a big knock and the market is definitely becoming less attractive than this time last year. The good news is that the recent tax changes alone won’t have a massive impact on the property market as a whole.
“If you can buy either in cash or with far less leverage, then there will still be decent long term money to be made. Certainly the recent changes have made it a lot harder to make money in BTL. But where there are challenges, there are opportunities if you can think outside the box.”
Armistead Property has put together some options that landlords can consider to protect their profits:
- Review your properties and see if you can get planning on an existing property to increase its value, by adding an extension, or converting the cellars?
- If you have a one bedroomed property, can you make it into a small two bedroomed property?
- If you lack building skills/knowledge, but have equity or cash may be partnering with someone more skilled in building/renovation work would be profitable.
- Consider changing a house into an HMO and increase the rental income.
- There is a real lack of shortage of properties right now and prices are at a record high so consider selling some stock.
- The tax changes don’t affect Limited Companies. Consider setting up a Limited Company and using this structure to hold your properties.
- Are you an active or passive investor? Passive investors will get hit hardest by the changes. May be active investors can find deals for other investors and create income streams there.
- It will become far more important to buy property below market value. You can’t just buy a £1 of property for a £1 anymore. Buying with a built-in discount will help ensure your investment is just that (ie an investment)
- Consider other specialist areas of property investment which compliment traditional BTL. For example, can you manage properties for other landlords and charge a fee for that service? Can you sack your lettings agent and do the job yourself or use a cheaper online lettings agent such as www.makeurmove.co.uk
Peter Armistead is a property investor with 80 properties in Manchester. Peter personally owns properties as through his company, Armistead Property. Back in the early 2000’s, Peter had a business plan of having three separate areas to invest in and chose London, Manchester and Whistler, Canada. The idea was that these were three different property cycles, with different property types, so on average whilst one market may be slow, the other two would be better. He changed this approach 10 Years ago and decided to concentrate on one location – Manchester. Now Peter only invests within a mile or two of Chorlton, South Manchester.
Article Courtesy of: www.armisteadproperty.co.uk