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A recent report from buy to let lender, Kent Reliant, has revealed that many landlords are restructuring their property portfolios in a bid to beat government tax changes. Some landlords have converted their businesses into limited companies, whereas others are raising rents or transferring ownership of properties to relatives.
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Rents Predicted to Rise by 5.4%
The average rent in the UK is now £881 per month. If landlords raise rents by 5.4%, which seems to be what’s on the cards, this means an extra £571 a year for cash-strapped tenants. The extra money will help landlord pay the extra tax, which will begin to kick in from next year.
At the moment, landlords can use any mortgage interest they pay to offset tax they owe on rental income. From next year, this tax relief is being phased-out, and by 2021, only 20% of mortgage interest will be subject to tax relief. If landlords change their business into a limited company, they will pay corporation tax, so they could be better off. Instead of taking out a buy to let mortgage when they want to purchase a property, they take out a company loan instead.
Landlord Limited Companies Grow in Popularity
Experts believe that limited company lending will grow in popularity and by 2017, 66% of buy to let lending will be to landlord operated limited companies. In a recent survey, more than 11% of landlords said they had incorporated their property business and a further 25% were keen on making the change.
