Tax breaks vs higher mortgage rates for limited company buy-to-let landlords 


Landlords that have set up as companies to expand their property portfolio may well be receiving beneficial tax breaks, but it could be costing them more on their mortgages in the long-term.

Many buy-to-let landlords have been moving their properties into a limited company to compensate for the loss of tax relief on mortgage rate interest. However, brokers have stated that the higher rates on buy-to-let mortgages for limited company landlords are putting many off the idea and that it’s only landlords with a significant property portfolio that are making the move to limited, as smaller-scale landlords weigh up the long-term implications.

Tempting tax breaks

As a limited company, a landlord’s rental properties become a business and are therefore subject to corporation tax at 19% on the profits. As an individual, a landlord would incur 20%, 40% or 45% tax (depending on their level of income), plus on the sale of the property incur capital gains tax liability which can be 19% for a basic rate taxpayer and 28% for higher rate taxpayers. The savings, particularly for a landlord paying higher rate tax, are considerable.

Mainstream mortgages cost less

However, landlords moving their portfolios into limited companies are likely to find their mortgage costs increasing.  Mainstream buy-to-let mortgages are as low as 1.81% for a two-year fixed rate with the Post Office, with a 25% deposit and a £995 fee. The Mortgage Works reduced its limited company buy-to-let rates this month, now offering a two-year fixed rate at 2.84% at 75% LTV with a £1995 fee or 3.29% with no fee.

On a two year fixed from Ipswich Building Society with an 80% LTV, individual landlords will pay 3.15% and a £1,149 fee. Directly comparable is the Paragon limited company buy to let at 80% LTV, 0.50% fee and a fixed two-year rate of 3.45%.

Despite the higher rates, specialist lender Paragon has reported a significant increase (16%) in the number of limited company landlords with large portfolios applying for buy-to-let mortgages in the first half of this year, with 88% of its total buy to let business coming from this customer base.

Perhaps landlords with larger portfolios operating as limited companies are unconcerned with higher rate mortgages because ultimately the tax breaks will offset any increase in mortgage rates, while smaller landlords have done the math and, for now at least, are better off remaining as they are.

Listen to the latest BuyAssociation podcast for a deeper dive

This month’s podcast will be covering everything you might need to know about Property Management & Mortgages. We will be joined by Matt Eastham from Easthams & Co – Property Management and Marcus Docker from Visionary Finance, giving us their insider’s view on everything you need to know in the property management and mortgages markets. Hosted by our very own Katie Walker.

Covering our some of clients top questions and the latest changes in the UK property market, including market trends, Section 21, letting fee bans, Generation Rent and buying a property in a limited company.

Disclaimer – This is not tax or mortgage advice, it is just a broad overview of the recent changes. Please consult a professional who can assist you with your personal circumstances and how these changes might affect you.

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Tax breaks vs higher mortgage rates for limited company buy-to-let landlords 


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