Last Updated: 13-01-2021
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Self-employed Contractors with Limited Companies looking to invest in properties
Whilst first-time buyers continue to struggle to get their feet on the housing ladder, the buy to let market is witnessing the return of property investors. The largest investors in properties are self-employed people, including contractors operating through their own Limited.
Many contractors that initially approach us for a Buy-to-let mortgage are looking at potentially buying an investment property either through their own Limited Company or through a separate company they wish to set-up.
Generally not tax efficient to own an investment properties through a Limited Company
However, it is not generally tax efficient to own long term properties through a limited company. That’s because the company will be subject to tax on any capital gains, and potentially more tax payable on extraction of the profits from the company. What many accountants forget to tell you, is that a company does not get an annual tax free allowance for capital gains in the same way that an individuals do, so generally pay more tax.
On the other hand, if the intention is to buy, refurbish and sell, then the situation changes. Profits on such deals are subject to income tax, NOT capital gains tax, because they are trading profits. Having a company also gives you the option to retain profits within the company, and perhaps take them out when there isn’t a higher rate problem.
Rents on the up
The lack of mortgage availability has pushed rents up and in certain areas of the UK rental yield is now as high as 8%. Findaproperty.com recently analysed the 50 top postcodes for buy to let investment and Southampton topped the list with a yield of 8.12%. Leeds was in second place at 7.52% followed by Virginia Water at 7.50%.
49 UK postcodes achieve returns in excess of 6% with 12 of these being in London. Private rental landlords enjoyed a buoyant start to the year. Rents have risen, tenant demand has increased and yields strengthened. High levels of demand for rental property are set to continue and the outlook for the buy to let sector is looking good, according to analysts.
Although the average asking price in most of the top 50 postcodes is well over £100,000, areas such as Grimsby and Hull yield 6.62% and average house prices are a more modest £69,635.73 and £75,310.53 respectively.
One buy to let mortgage broker, reported a 62% year on year increase in mortgage applications for the first quarter of this year. Research from the company shows that London, Portsmouth, Sheffield and Brighton have been the top areas for buy to let investors in the last two quarters.
More mortgage lending companies, especially building societies, are starting to enter the buy to let arena although not all are relaxing their lending criteria just yet. In fact The Mortgage Works lowered the maximum loan it would give based on rental income last week. But on the whole, the buy to let sector is definitely showing marked signs of improvement.
John Yerou is a pioneer of contractor mortgages and owner and founder of Freelancer Financials, Contractor Mortgages®, C&F Mortgages and Self Employed Mortgages, trading styles and brands of the award-winning Mortgage Quest Ltd.
Posted by John Yerou
on April 22nd, 2011 06:00am in