Calling buy-to-let landlords! This trick may slash your tax bill

More and more landlords in the UK are using this trick to cut their tax liabilities. Want to know what all the fuss is about? Read on.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

As we all know, the rollout of crushing tax changes affecting buy-to-let properties has had a devastating impact on the market.

In a bid to free up more homes for first-time buyers, HM Revenue and Customs first introduced a 3% stamp duty hike for anyone buying a second home — whether for investment purposes or not — in the 2016/17 tax year. In the same period, it terminated landlords’ ability to deduct an amount for so-called wear and tear from taxable profits.

The crushing blow came the following year though, with the introduction of a phased reduction in tax relief on buy-to-let mortgages. This relief was first capped at 75% for mortgage interest payments, a level which has fallen to 50% in the current year and is set to eventually fall to 0% by the 2020/21 fiscal year.

A changing market

However, an increasing number of landlords are finding a way of getting around these tax relief changes by choosing to own their properties via a limited company.

Indeed, a report just released from broker Mortgages For Business showed that 44% of all buy-to-let mortgage transactions were made by limited companies from July to September, up from 42% in the previous three-month period.

The growing use of such corporate vehicles with landlords has led to an explosion in the number of lenders now offering buy-to-let mortgages to limited companies. There were 22 of these financiers as of September, up from 15 at the same point in 2017, with three new market entrants emerging in the last quarter alone.

The consequent rise in the number of mortgage products available to landlords borrowing through a limited company has been even more impressive. During the July-September period last year there were an average of 263 such products available. A year later and the average had exploded to some 628 products.

Claims that the buy-to-let market was DOA have clearly been overdone. Indeed, with the number of products now standing at the highest on record, Mortgages For Business’s managing director Steve Olejnik commented that “this just goes to show there is still a lucrative, buoyant market out there following on from the recent regulatory changes.”

A better way to invest

I’m still not convinced that property investment is the best way that Britons can make their money work for them, however.

First of all, the steps that I mentioned can involve the sort of significant costs that one would associate with the establishment and running of a limited company. Thus they are only likely to be of benefit to higher-rate taxpayers.

Irrespective of those tax issues, there are a number of reasons why I think buy-to-let may isn’t a great way to invest. Increasing regulation, higher costs, and flattening rent growth are all significant problems, and as I have discussed in previous articles there could be even more trouble coming down the line as government wages war on the sector.

I believe that stock investing is a much smarter, simpler and more effective way that savers can put their money to work. And the recent washout in global share markets leaves plenty of bargains out there just waiting to be snapped up.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Shot of a young Black woman doing some paperwork in a modern office
Investing Articles

With an 8% dividend yield, I think this undervalued FTSE stock is a no-brainer buy

With an impressive yield and good track record of payments, Mark David Hartley is considering adding this promising FTSE share…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

£9,500 in savings? Here’s how I’d try to turn that into £1,809 a month of passive income

Investing a relatively small amount into high-yielding stocks and reinvesting the dividends paid can generate significant passive income over time.

Read more »

Businesswoman analyses profitability of working company with digital virtual screen
Investing Articles

Dividend star Legal & General’s share price is still marked down, so should I buy more?

Legal & General’s share price looks very undervalued against its peers. But it pays an 8%+ dividend yield, and has…

Read more »

Investing Articles

Dividend shares: 1 FTSE 100 stock to consider buying for chunky shareholder income

This company’s ‘clean’ dividend record looks attractive to me and I’d consider buying some of the shares to hold long…

Read more »

Investing Articles

3 of my top FTSE 250 stocks to consider buying before April

Buying undervalued UK shares can be a great way to generate long-term wealth. Here, Royston Wild reveals a handful on…

Read more »

Ice cube tray filled with ice cubes and three loose ice cubes against dark wood.
Investing Articles

Just released: our 3 top income-focused stocks to buy before April [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Investing Articles

Is this the best chance to buy cheap FTSE 100 shares in a generation?

I want to buy shares when they're cheap, and sell... never, just keep taking the dividends. And the FTSE 100…

Read more »

Man putting his card into an ATM machine while his son sits in a stroller beside him.
Investing Articles

Could NatWest shares be 2024’s number one buy for passive income?

For those of us looking to earn some long-term passive income, how does NatWest's 7% dividend yield sound? It sounds…

Read more »