The number of limited company landlords has been on the rise over the past decade, and there are now more mortgage products than ever to cater to this segment of the market.
Limited company landlords continue to reap the benefits of operating as a business rather than an individual, with new research from Paragon Bank revealing that the proportion of incorporated property held within the portfolios of limited company landlords has more than doubled since the first quarter of 2020.
The report revealed that out of 12% of landlords who own their properties through a combination of both individual ownership and limited company, an average of three quarters (76%) of their total portfolios was incorporated by the end of Q3 2024.
This is a huge rise compared with figures from 2020, when just 36% of limited company landlords’ portfolios were owned within the limited company, with the rest under personal ownership.
However, the majority of landlords overall in the UK still own their buy-to-let properties as individuals rather than limited companies, at 79%. The trend is much more prevalent among landlords with larger property portfolios, indicating the benefits may be greater for larger-scale landlords.
Paragon found that only 7% of landlords who own between one and three properties operated via a limited company, while 28% of landlords with four or more properties were incorporated through a limited company.
One size doesn’t fit all
One of the biggest driving forces behind more limited company landlords emerging in the market over recent years has been changes to the way property income is taxed since the introduction of Section 24.
Some landlords can save money by operating through a limited company as they can still claim 100% mortgage interest relief on their income, while individual landlords can no longer claim this relief. However, not everyone will be better off.
Louisa Sedgwick, Managing Director for Mortgages at Paragon Bank, said: “The trend towards holding properties in limited companies doesn’t seem to be slowing down. In fact, these figures show that it’s actually growing amongst landlords who have found it can deliver benefits, particularly around how much their income is taxed.
“Despite this, we see that the majority of properties, 79%, are owned solely in individual names, hinting at the potential opportunities for limited company lending business. Brokers can add another string to their bow by generally upping their knowledge of what’s involved and, more specifically, the lenders who are good at managing this type of application and their criteria.”
She added: “Incorporating portfolios isn’t going to be the best move for all landlords so we’d always recommend that they seek professional advice, typically from a tax adviser or accountant.”
Why be a limited company landlord?
- One of the reasons people set up a limited company for any purpose, whether a property investment or something else, is the offer of the ‘limited liability’ protection that comes with it. This means that the company is an entity in its own right, and means you are not personally liable for any financial losses made by the business.
- A limited company also exists beyond the life of its shareholders. Therefore, if one shareholder (the landlord) retires or resigns or passes away, the company will continue to exist and operate, along with any properties owned by the company, which could protect it from certain taxes such as inheritance tax.
- For property investors specifically, the appeal of the tax differences between a being a limited company landlord and owning a buy-to-let as an individual are a major plus point. A limited company landlord can deduct 100% of mortgage interest costs as an expense from their income, as it is considered a business expense. By contrast, individuals can no longer claim this tax relief.
- For higher taxpayers in particular, a being limited company landlord can be particularly appealing as rental income held in a limited company is charged corporation tax, which is currently 25% for profits over £250,000, or 19% for profits under £50,000 (2024/2025 tax year). This is instead of income tax that would be payable on any rental income profits, which is 20% basic, 40% higher rate, and 45% additional rate.
What are the downsides?
- One of the main points to consider if you’re thinking of becoming a limited company landlord is that it might not save you money. If you are a basic rate taxpayer, for example, any other savings you make may be offset by the cost of setting up and running the company with an accountant, as well as the potentially higher mortgage costs that can come with a limited company buy-to-let.
- If you decide to sell your rental property, there is no allowance given on the amount of capital gains tax owed, meaning you will have to pay the full amount owed on any profits made. By contrast, an individual can currently claim an allowance of £3,000 (2024/2025) of any profit made, before the CGT rate kicks in.
- As mentioned above, most lenders charge higher rates on limited company buy-to-lets, and there may also be fewer lenders to choose from as it is a more niche product. However, with the surge in limited company landlords over recent years, there has also been a rise in the number of lenders and product options available.
- While many landlords, and particularly smaller ones with fewer than three properties, carry out their accounting and tax affairs themselves, you are much more likely to need legal and/or tax assistance when setting up and running a limited company, which is an expense to factor in.
Overall, it will largely depend on personal circumstances, as well as future goals and plans, when deciding whether to operate as an individual or via a limited company structure, and conducting thorough research or taking professional guidance is always advised.