Mortgage Market News

Stamp Duty Holiday: Is now the time to restructure your buy to let portfolio?

Can owning multiple homes make remortgaging more difficult?
Wednesday July 29, 2020

Judging by our case load, the Stamp Duty Land Tax (SDLT) holiday is certainly having the desired effect of stimulating the housing and mortgage market, as we have been inundated with enquiries from clients keen to take advantage of the Chancellor’s temporary measures.

One area where we have seen a significant spike is the buy to let space. Portfolio landlords (generally classed as those who own more than four rental properties) are using the six month window to transfer the ownership of their properties from individual to company ownership, safe in the knowledge that, if their property is worth more than £125,000, they will incur a significant SDLT saving in doing so.

Why are we seeing this trend?

As buy to let landlords know, tax relief has been eroded over recent years, and mortgage interest tax relief has now been fully phased out and replaced with a less valuable tax credit. The change is felt most keenly by landlords paying higher rate tax, who now pay tax on rental income based on revenue, rather than their profit after mortgage interest is paid. That means most buy to let landlords face paying 40% tax on their rental income, rising to 45% if they earn more than £150,000.

One way to structure a buy to let portfolio is to transfer the ownership of a property from an individual (or joint) name to a company. If your company owns the property, the mortgage interest can still be offset against the rent received and only the profit will be taxed at corporation tax rate, which is 19% for 2019/2020 dropping to 17% for 2020/2021. This could represent a 20% plus saving of tax for anyone in the higher bracket.

The obstacle many have faced in taking advantage of more beneficial tax rates has been the Stamp Duty costs involved in transferring ownership. However, the burden of this has been lessened somewhat, as the short-term Stamp Duty holiday represents the potential for significant tax savings on the transfer of ownership on any property priced above £125,000.

What are the potential savings?

If you are looking to establish a company – or transfer ownership of property or properties to an existing company – ensure you take the correct advice. Speak to a tax advisor who can give you a full assessment of your overall situation and advise accordingly.

If you’ve evaluated your situation and are keen to explore your financing options, don’t hesitate to get in touch with our team of specialist mortgage advisers, all of whom have significant experience in the buy to let lending space.

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