Which ownership structure is right for your landlord clients?

Are your clients looking to invest in buy to let? According to the latest rental market report from Zoopla, demand for rented homes is 10% higher than this time last year[1].

Whether they’re looking to purchase a standard buy to let property or already manage a large portfolio, they’ll need to know about their possible ownership structure options before they go ahead.

There’s a lot to consider, so it’s always important they speak to a qualified tax adviser and seek legal advice too.

What’re the differences between personal, joint and limited company ownership?

Personal ownership

Personal ownership is used when an individual client purchases a property in their name.

When the first buy to let mortgage was launched in 1996, those attracted by the promise of rental income and capital growth found that a personal ownership structure was the simplest way to look after their investment.

However, with mortgage interest tax relief phased out and changes implemented to taxation and legislation, growing numbers of private landlords have either exited the sector or looked at different ways to run their business.

Joint property ownership

Joint property ownership could be used if your client is purchasing a buy to let property with a spouse or business partner.

Typically you may find spousal partners using joint tenant ownership and business partners using tenants in common, however the type of ownership really depends on their circumstances. There are some essential considerations below to help you look at your clients’ situation and see what the right type of joint ownership structure is for them.

Joint tenants

• Each owner has equal rights to the whole property.
• If one owner dies, property ownership automatically goes to the surviving partner.
• For the property to be sold, both owners must first agree to the sale and any proceeds from the sale are split equally.
• Owners cannot pass on their share of the property in their will.

Tenants in common

• Ownership doesn’t have to be split 50/50, borrowers can own differing shares of the property.
• Property ownership doesn’t automatically switch to the remaining owner if one joint owner dies.
• Once both owners agree to sell the property, the proceeds are split depending on the number of shares each owner has.
• Joint owners can pass on ownership of the property in their will.

Limited company ownership

A limited company structure could be a preferential route for investors, especially if they’re looking to purchase multiple properties.

Although it can seem like more hassle, increased costs and administrative work that comes along with a limited company structure could have less of an impact when your client has more properties in their portfolio. It’s worth asking your clients about their long-term buy to let plans.

So why should landlords consider running their buy to let business as a limited company?

• The reduction in mortgage interest tax relief doesn’t affect limited company landlords. It means those choosing to incorporate can offset all of their mortgage interest against profits from their rental income.
• Companies are subject to Corporation Tax depending on the level of their profits. The main rate is 25% where profits exceed £250,000. Where profits are below £50,000, the rate is 19%. For companies whose profits fall between these two limits, they’ll pay Corporation Tax at the main rate, as reduced by marginal relief.
• Limited company applications are stress tested at an ICR from 125% which is lower than the 145% ICR many lenders apply to individual landlord applications.

Landlords deciding on personal or joint ownership who’re considering a potential transfer of their ownership to a limited company in future, should be made aware of what they’ll need to budget for. Legally the transfer could be seen as a type of sale and purchase structure, which means more costs for your client as they may be liable for Stamp Duty, Capital Gains Tax and Early Repayment Charges.

How InterBay could help

Whichever structure your client chooses, InterBay is ideally placed to help them find the right buy to let mortgage.  Our range can support a variety of property types, including converted and purpose-built houses in multiple occupation (HMOs) and multi-unit freehold blocks (MUFBs).

Our buy to let mortgages are available to:

• Individuals (UK and EU nationals residing in the UK)
• Limited liability partnerships (LLPs)
• Limited companies (UK incorporated)
  
  

To find out more about how we could help, speak with a member of our sales team, visit www.interbay.co.uk or call our team on 0345 878 7000.

[1] Rental market report: what's happening to rents? - Zoopla

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