Running your property investments through a limited company structure has become an increasingly tax-effective way for landlords to operate, but it won’t suit every situation.
The number of landlords who own properties through a limited company almost doubled between 2019 to 2022, from 15,800 to 28,130, according to the latest research released by Easy Offices using Companies House data.
Professionalising your property business by launching a limited company, as opposed to buying, running and selling each buy-to-let property as an individual, has proven a positive step for many in the industry, particularly since Section 24 tax changes came into effect.
This served to limit the amount of income tax relief that could be claimed based on your mortgage interest payments, meaning some landlords were liable to pay a higher amount of tax. Using a limited company, landlords pay corporation tax instead, which can be more cost-effective in some situations.
Post-pandemic limited company surge
Easy Offices’ data also notes a particular increase in the number of younger landlords who now own property through a limited company structure. The number of landlords aged under 50 registering limited companies increased from 107 in 2019 to 1,178 in 2022.
However, over-50s still make up the largest group of this investor type, at 40% of the total.
The study also discovered location trends when it honed in further to limited company ownership among younger landlords, with large numbers focused in city locations including London, Manchester, Birmingham and Leeds. This, believes Easy Offices, is probably linked to more young people starting their own businesses post-pandemic.
Commenting on the figures, John Williams, chief marketing officer at Easy Offices, said: “This spike of new businesses following the pandemic shows how it drove a large number of people to take bold steps. We have seen the number of sole traders and small businesses looking for office space leap year-on-year.
“This trend is based on a lot of more experienced workers leaving behind their white-collar jobs with blue-chip companies and looking to start their own ventures after the pandemic.
“It is the rise of the midlife entrepreneur, similar to that we saw in the aftermath of the Global Financial Crisis in 2008.”
The pros and cons
Choosing to launch a limited company to run your property investments is a decision that will come down to a number of factors, and the benefits and drawbacks are likely to vary from situation to situation. It is therefore recommended that you seek professional, independent advice on the matter.
A survey conducted in December by GetGround uncovered the biggest benefits cited by investors, with 93% of respondents saying their investments proved more profitable when they were held in a company. A further 57% if people said limited personal liability is a big plus-point, along with being able to invest with multiple people.
More than three quarters (78%) of respondents said that this investment method helped them mitigate the impact of inflation.
There are some other considerations to take into account, though. For smaller landlords, such as those with just one property, or those in the lowest income tax bracket, the tax benefits may be less.
Further to this, any property investment you already own would need to be effectively sold to the company, which would incur stamp duty and other costs. Many landlords therefore choose to place new investments into their limited company structure, but continue to own existing ones personally.
Obtaining a mortgage for a limited company buy-to-let is also generally more expensive and more complex compared to a standard buy-to-let. The associated costs involved with setting up and running a limited company in the first place must also be considered by any landlord thinking of making the switch.
BuyAssociation specialises in connecting property investors with developers and investment projects in some of the most promising areas across the UK, and we also work with partners who can offer advice and assistance if you choose to use a limited company structure. Get in touch for more information.