Last week, we took a magnifying glass to the stamp duty changes in the Autumn Statement and found, in the small print, an important exemption. Although the Treasury is still consulting over the exact details of the policy, the current thinking is that the higher stamp duty rates will not apply to corporate entities. Research released this week has backed up our prediction that the changes would reinforce a trend in borrowing through companies, initially triggered by the summer’s tax changes.
In July’s budget, it was announced that tax relief on mortgage interest was being slashed to the basic rate of 20% for buy to lets. Landlords will no longer be able to deduct the cost of their mortgage interest from their rental income when calculating how much tax to pay.
The impact of the budget has become quickly apparent. Landlords have reacted fast, with applications in September tripling year-on-year. One quarter of all buy to let mortgages are now taken out through limited companies, up from 13% a year ago.
If the exemption set out in the Autumn Statement is confirmed, it will be a major incentive for yet more professional landlords to incorporate, thereby avoiding the extra 3% stamp duty charge.
‘The meteoric rise of the buy to let sector caught George Osborne’s eye, and he has come down hard on private landlords,’ says Islay Robinson, CEO of Enness Private Clients. ‘But company landlords are receiving preferential treatment on the basis that their aims are in line with the government’s housing agenda. The stamp duty changes will hugely boost demand for company structures, something which is already rocketing thanks to tax relief cuts.’
It is a confusing time for buy to let investors, but industry experts are starting to draw tentative conclusions from the recent upheaval. The rush to put properties inside a limited company is likely to become a stampede; and, over the next few months, the buy to let market will become turbo-charged as landlords scramble to beat the stamp duty deadline.
‘We are expecting a spike in market activity before April,’ says Mr Robinson. ‘But looking further ahead, I don’t believe these tax changes will mean the death of buy to let. Lenders are still keen to lend in this area, and interest rates remain for the time being at an all-time low. Many people are also actively exploring the option of purchasing properties through a limited company vehicle. The buy to let sector has been through the wars recently, but it will adapt and develop in a different direction.’
Increasing demand will most likely prompt some lenders to develop a specific limited company proposition over the next few months. This is an area of the market that should see significant growth – and improvement – as the changes take effect.
If you have any questions about the products available or your financing options in general, please do get in touch with Enness. Start with a no-obligation chat to find out what one of our specialist brokers could achieve for you.