How landlords are softening the blow of buy to let tax changes
The government's tax changes on second homes has produced a record demand for mortgages through companies in the first quarter of 2016, according to a report released today.
Buy to let lending to limited companies surged to nearly 38,000 in the first quarter, which is more than for the whole of 2014, as landlords incorporate to soften the blow of tax changes on buy to let properties, which include lowering the tax relief on mortgage interest payments from April 2017.
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The report, Kent Reliance's Buy To Let Britain, predicts the number of loans to limited companies will come close to 100,000 this year. Borrowing through a company means investors are taxed at lower corporation tax rates and can offset finance costs against rental income.
Government tax changes are having a knock-on effect for renters, the report said, and "rents are set to rise further." Four in ten landlords expect to raise rents in the next six months, by 5.6 per cent on average, which represents around £49 for tenants.
Three quarters of the landlords who are increasing the rents cite the impending reduction in mortgage tax relief as their reason for doing so.
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London continues to be the hot-spot for the private rented sector, with landlords in the capital taking £20.2bn in rent last year, or 38 per cent of all the rent paid in Great Britain. The city's private rental sector comprises 1m households, up 6.1 per cent on last year, compared to 5.5 per cent in Great Britain.
Andy Golding, chief executive of OneSavings Bank, said: "The buy to let market now sits firmly in the crosshairs of both politicians and regulators, and we are seeing landlords react. Thousands hurried purchases to beat the stamp duty deadline, and the popularity of limited companies is soaring as investors seek to reduce tax exposure.
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"But it is tenants who are feeling the real brunt. Rents are rising, and landlords will increase them further as they pass on the increased cost of running their business.
"Far from supporting tenants, recent intervention will see them bear a heavier tax burden."