Landlords are exploiting a loophole in the law in an attempt to dodge Chancellor George Osborne’s tax raid on second homes and rental properties.
Soaring numbers of buy-to-let investors are now joining forces to set up companies to purchase homes.
Potentially, this allows landlords to avoid the cuts to tax relief on mortgage interest unveiled by the chancellor in his Summer Budget, and a Stamp Duty increase revealed in the Autumn Statement.
Cutting landlord tax relief to the basic rate of 20 per cent will cost more than 200,000 landlords a total of £2.6billion.
The 3 per cent surcharge on stamp duty tax could bring in an extra £4 billion for the Treasury.
But now a report by Kent Reliance building society has revealed the number of mortgages being taken out by companies is up more than 200 per cent since George Osborne’s first raid on landlords in July.
Researchers said it was too early to identify effects of the stamp duty changes on the market, but since the government was consulting on exempting corporate structures with more than 15 properties, the trend towards incorporation was expected to accelerate next year.
Across the whole market, an average of 5,000 mortgages per month were issued through companies in July, August and September, up from 2,500 a month a year earlier. The total rents collected by landlords surpassed £5bn a month, the report said.
“Our data show the number of applications via limited companies saw an immediate impact from the Budget, with 40 per cent more applications of this type in July than a year ago,” said the lender.
The report added that landlords might choose to form joint companies to pass the 15-property mark.
John Eastgate, sales and marketing director at OneSavings Bank, said: “With the stamp duty changes coming on top of the tax changes from the Summer Budget, we are potentially facing a first-quarter bubble in terms of the volume of buy-to-let transactions done through a limited company.”
Richard Lambert, chief executive at the National Landlords Association, said: “Undoubtedly some landlords will be considering incorporating their businesses to protect their livelihoods but this isn’t a simple task and there are significant barriers to doing so.”