Many landlords are preparing for government tax changes by placing their property portfolios within limited companies, a new study has revealed.
Kent Reliance’s Buy to Let Britain report suggests that investors have sought secure mortgages through limited companies or have put up rents to mitigate higher tax costs.
Kent Reliance’s analysis reveals that landlords are increasingly turning towards incorporation, taking out loans within a company structure, where costs can still be offset against rental income. It says there have been more than 100,000 limited company loans issued in the first nine months of the year – double the amount in the whole of 2015.
The report found that 11% of landlords said they already had incorporated, or have moved holdings to a lower-rate-tax-paying spouse or partner to limit their tax exposure, while a further 25% are thinking about doing this.
Andy Golding, chief executive of OneSavings Bank, which owns Kent Reliance, says: “Property investors have had to roll with the punches in 2016. The stamp duty levy clearly took its toll on the market and, combined with the forthcoming tax changes, landlords have felt at the mercy of a political agenda. But confidence is returning as landlords take action to limit the damage to their finances. The use of limited companies is soaring, and rents are increasing, even after one of the biggest surges in rental supply in recent history.”
Kent Reliance reports that the average rent in Great Britain has hit a record high of £881 a month. Rents went up by 2.4% in the last quarter, and the report reveals that a third of landlords expect to increase rents in the next six months by an average of 5.4% – that’s equal to £571 a year per household.
Kent Reliance says that the ban on letting fees announced in the Autumn Statement may reduce tenants’ upfront costs, but will see landlords increase their rents to cope with any additional costs.
Mr Golding adds: “The raft of recent measures aimed at the buy-to-let sector singularly sought to increase homeownership levels. Ironically, they will achieve the opposite, with even greater upward pressure on rents combined with the prospect of declining real incomes likely to stretch affordability even further.
“We have warned all along that the tax changes will push up rents, and this is already starting to happen. The ban on often unjustifiably high letting fees is well intentioned. However, it also means landlords could pass higher costs on to tenants, doing little to bring down the overall cost of renting.”