August 10

Landlords Turn Corporate for Tax Perks


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According to a bank’s statement, an increasing number of landlords are setting up companies to safeguard earnings from the challenging buy-to-let market.

Richard Rowntree, mortgage chief at Paragon Bank, notes: “Recent industry figures show a rise in BTL mortgages for landlords functioning as limited companies in the last five years. This surge is largely attributed to many looking to lessen the blow of governmental tax amendments introduced in 2017.”

“Incorporated landlords frequently have access to more substantial loans, and for limited company applications, lenders usually evaluate interest coverage at a reduced rate.

This suggests that buying or refinancing via a Special Purpose Vehicle (SPV) limited company framework might enhance the likelihood of a successful deal, especially relevant in today’s market where affordability is increasingly constrained.”

A study by Paragon Bank earlier in the year indicated that over 60% of landlords looking to purchase a new let property intend to do so under a limited company setup.

This comes after a 5% uptick from Q4 2022, and a yearly surge of 12%, mirroring the peak seen in Paragon’s records for Q2 2022. The number of landlords looking to buy as private individuals has dipped by 5% since Q4 2022, now standing at 24%. Among those considering acquisition within a limited company framework, 64% possess six properties or more.


Why the Shift to Limited Companies?

One may ponder the reason for the notable lean towards adopting limited company models. The chief motivator is the evolving tax scenario for property owners. By functioning within a limited company, these owners can capitalise on particular tax incentives and perks not open to them as singular landlords. For instance, corporation tax rates generally come in below individual income tax rates.


How it Affects the Property Market

The shift in landlords’ approaches creates a domino effect throughout the property sector. Initially, there’s likely heightened competition in the buy-to-let mortgage arena, ushering in a broader range of financial solutions for these company-structured landlords. It also alters the dynamics of managing rental assets. Using a company framework can lead to a more organised methodology in managing properties, potentially enhancing the calibre of rental dwellings.


Pros and Cons of Incorporation

The move towards incorporation may appear universally beneficial, but it’s vital to realise it’s not a one-size-fits-all solution. For substantial landlords with a vast property portfolio, the transition might be logical, considering their operation’s magnitude and possible tax-related benefits. Conversely, landlords with fewer properties might deem the administrative rigours and expenses associated with initiating and upholding a limited company as cumbersome. Not to mention the tax implications and potential stamp duty charges when shifting existing assets under the company’s umbrella.


Looking Ahead

Given the consistent appreciation of property values and promising rental returns, the buy-to-let sector remains an enticing prospect for investment. As the legislative and tax climate persists in its flux, it’s imperative for landlords and investors to remain adaptable, fine-tuning their tactics to ensure optimal profits whilst adhering to regulations. The gradual tilt towards company-based structures is a testament to the sector’s adaptability to external shifts. As ever, would-be investors are advised to liaise with financial specialists to discern the most fitting strategies tailored to their specific circumstances.


Read more Property Investing News HERE



BTL mortgages trends, Buy-to-let market challenges, Landlords incorporation

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