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May 17

by Millie Wickens
Buy to let lenders squeeze tax avoiding landlords

Mortgages are getting harder to come by for landlords planning to minimise the tax they pay by transferring the ownership of their rental properties into a company.

Only one in six lenders will advance funds to landlords suspected of ‘aggressive’ tax planning, says research from buy to let specialist lender Paragon.

The firm explained lenders have concerns about landlords switching beneficial ownership of rental properties from ownership by a partnership to a limited company to avoid tax, because the arrangement may break HM Revenue & Customs anti-avoidance rules.

The worries were revealed at a buy to let forum for brokers arranged by trade publication Mortgage Solutions.

Paragon regional sales manager Tim Sweetman told the forum:  “There was a strong debate about if this method could be considered contrived and fall foul of HM Revenue & Customs anti-avoidance legislation.

“Lenders are generally not in favour of this route and are unlikely to give approval. This may not be permitted in mortgage documentation.

“There may be complications if refinancing a property that has been subject to these arrangements.”

Research by Paragon found that 10 out of 65 buy to let lenders would offer a loan to a landlord pursuing a beneficial interest tax strategy.

“We’re not saying there’s anything wrong with it in principle, but what we are saying is make sure you take that relevant advice before going down those steps,” said Sweetman.

“If you do take those steps, and if there’s only 15 per cent of lenders who will actually carry out beneficial interest lending, what options are there for the client and what are the actual costs that could be incurred by the client moving down the line?”

Beneficial ownership differentiates between the legal owner named on property deeds and the person receiving the financial benefit of rents and sale proceeds from a rental property.

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