According to a recent report, over half a million landlords have taken some form of action so that they can reduce their tax bills in preparation for the new tax rules which come into force in April.

As the implementation date for the government’s tax changes approaches, a number of landlords are forming a limited company. Currently, an investor can deduct the cost of the interest-only mortgage from the rental profit. You pay tax on the amount remaining.

The new regulations state that a tax credit of 20% will be applied to the cost of the interest-only mortgage, but tax will be chargeable on the remaining cost, which means that a landlord will pay a far higher tax amount. However, a limited company pays Corporation Tax of 20% on the whole of the profit, reducing the tax bill.

In March 2016, the number of landlords taking out a mortgage as a limited company increased to 20,525, just before the new stamp duty regulations were released. Since then, June was the busiest month, with 13,522 loans.

According to the report produced by Kent Reliance, 11% of landlords have already incorporated, or transferred holdings to a spouse or partner who pays a lower rate of tax. Another 25% said that they would consider taking similar action.

All borrowers will be facing the new tougher affordability checks, to ensure that they can meet the repayments. Mortgage advisers are CeMAP trained and can very often provide advice which can reduce the overall cost of taking out a mortgage.

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