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There has been a rise on the number of property investors who purchase and manage their investment properties as a limited company due to the financial benefits attached to managing your investment this way.
Following Brexit, interest rates remained at an historic low in order to avoid a recession. Many people then moved money from savings into property as an investment strategy.
So what is the benefit of buying property as a limited company?
In the first half of this year, the number of buyers applying for a mortgage through a limited company rose by 30% compared to the same time last year.
Buying through a limited company won’t stop you from having to pay the standard amount of stamp duty. However, being a corporate entity such as a limited company means that you can avoid the impending tax relief changes, which will be phased in from next April and which could price landlords out of the market completely.
At present, landlords can claim the top rate tax relief of up to 45% on residential buy-to-let properties. However, from April this will be reduced to just 20% and could see profits fall considerably.
If you purchase a buy to let property through a limited company, then you will pay different forms of tax and won’t be affected by this change.
If you think this could be a good strategy for you, it’s worth considering that there are costs involved in dissolving a limited company when the time comes. Profit is still taxable when you come to do this. In addition you do have running costs, for example you must file accounts with Companies House and audit the company so this will incur book keeping and accountancy fees.
Your home may be repossessed if you do not keep up repayments on your mortgage.
The Financial Conduct Authority does not regulate on Buy to Let mortgages.
Tax treatment varies according to individual circumstances and is subject to change.
Talk to Derngate Wealth for information on buying a property through a limited company, we can advise you on whether this is the right strategy for your circumstances and future plans.
If you would like more information on how a rise in mortgage rates may affect you, please contact Derngate Wealth today.