April will see a reduction in mortgage tax relief and individual landlords will be prevented from deducting their interest payments or any other finance-related costs from their turnover before declaring their taxable income.
However the new tax changes do not affect buy-to-lets by limited companies or investors taking out commercial loans. As a result, the proportion of landlords planning to take out commercial loans rose from 10% in July 2015 to 19% at the end of last year.
In the past year the number of landlords forming a limited company has risen by 500% to 20,000.
Richard Lambert, chief executive at the NLA, said: “Over the last year more than one hundred thousand landlords have formed a limited company in order to beat the tax changes, and this overlaps with an increasing intention to look to commercial loans to fund future purchases.
“While commercial loans are available to non-incorporated landlords they tend to be a source of funding more commonly used by limited companies looking to expand their property portfolios, so we’d expect to see this trend develop as the year plays out.
“However, we know that the Treasury is concerned by the drop in tax revenues as a result of businesses across the economy incorporating to reduce their tax bills, and the Chancellor hinted at a review into the matter during his Autumn Statement last year.
“With this government’s recent track record in mind, we’d advise any landlords who have yet to incorporate to wait to see whether a consultation is launched in the Budget [on 8 March] before making a decision.”