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Three quarters of landlords intend to purchase through a limited company

Investing in property through a limited company can carry a number of advantages for the owner or owners, and a growing number of landlords are turning to this structure. 

Many professional landlords, particularly those with large portfolios or those who co-own properties, use a limited company structure to make and manage their investments. But in recent years, due to certain tax changes affecting the buy-to-let space, this method of owning an investment property has become even more popular.

The latest research from Paragon Bank has now revealed that almost three quarters (74%) of UK landlords surveyed plan on using such a company structure when they come to make their next investment in the coming 12 months. This is the highest level recorded by the BVA BDRC tracker.

It is also a relatively steep rise from the 62% of landlords who said they planned to purchase in this way in the first quarter of this year. The data also shows that the average number of properties held per landlord in Q2 was 12.3, compared with 11.7 in Q1.

Why use a limited company?

  1. Income tax: If you invest in property using a limited company, rather than as an individual, you will be subject to different tax rules. For example, while an individual higher rate tax payer may be subject to 40% tax on a portion of their earnings, including rental income, this falls to 19-25% corporation tax for limited companies.
  2. Mortgage interest relief: Landlords who have been operating in the UK market for a number of years would have once been able to claim 100% of their mortgage interest payments against their income. This has now been phased out for individual owners under Section 21, but limited companies can still claim this relief.
  3. Financing options: Paragon points out that while most lenders set interest coverage ratios at 145% for higher-rate taxpayers, applications through limited companies only require ratios of 125%.
  4. Greater borrowing: Often, professional landlords operating through a company can secure higher loan amounts than individual landlords, which can open up a wider range of investment opportunities.

Due to the above factors and other aspects of this investment method, many landlords find that their profits are stronger when they own property via a limited company.

However, as with any major business or financial decision, it is important to seek advice and gain a full picture of whether this option is right for you. For example, it can be very costly to move properties you already own into a limited company, as you would incur costs such as stamp duty and legal fees.

Further to this, those landlords who are not higher taxpayers may not see the same benefits as those in the top tax bracket, meaning that the administrative costs of setting up and running one may outweigh any increase in profits or tax benefits.

Acceleration in 2023

As Louisa Sedgwick, commercial director of mortgages at Paragon Bank, points out, activity in this space has been ramping up over the course of 2023. This is likely due to factors such as rising mortgage rates and other costs leading to landlords looking at how they can continue to maximise their investments.

“Holding rental property within a Limited Company structure has been growing in popularity since the mortgage interest relief changes introduced by the government in 2017, but it has certainly accelerated in the past year,” she says.

“As a lender that specialises in portfolio landlords, we have always attracted a higher proportion of Limited Company lending, but that has certainly increased, particularly as interest rates, and subsequently mortgage pricing, have risen.”

At BuyAssociation, our team of property investment consultants are experienced in dealing with investors who use limited company structures. We can also put you in touch with one of our independent partners if you’d like more information. Get in touch today to find out more, or to register your interest in UK property investment opportunities. 

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