The number of Landlords looking at Commercial Loans as a means to fund purchases has been steadily increasing. During the last 18 months the number has doubled as landlords try to avoid the up and coming buy to let tax changes.
The National Landlords Association demonstrates through recent research that the proportion of Landlords exploring the option of Commercial Loans and Mortgages has rose from 10% during July 2015 to 19% at the end of 2016.
The buy to let tax changes were announced in July 2015 and will take full effect on fully integrated by 2021.
The changes will prevent landlords with buy to let mortgages from subtracting interest payments as well as any other additional financial service costs before they submit their taxable income.
Coincidentally this increase arrives with reports of a 500% increase in the number of landlords choosing to form limited companies within the last year.
To put this in perspective it was about 1% in January 2016 numbering approximately 20,000 landlords compares to 6% by the end of 2016. About 120,000 Landlords total in all.
Owning the properties through a limited company will allow Landlords to avoid the planned buy to let tax changes. Rather they will pay Corporation Tax, currently 20% of their taxable profits.
As a result of the buy to let tax changes over a hundred thousand landlords have set up limited companies in order to side step the changes.
Many Landlords have also hinted at their intention to look to commercial loans in order to fund future property developments and acquisitions.
It’s worth mentioning that you can get commercial loans and mortgages even if you are not an incorporated landlord. Though they are historically mainly used by Limited companies and we would expect to see this use trend continue in the coming years.
Landlords want to reduce tax bills. The Treasury is all too aware of the potential drop in tax revenue as a result of this strategy. It would probably be good advice to hold back on incorporating a limited company if you haven’t already done so. The chancellor has hinted at a review into the matter.