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A record number of buy-to-let landlords are setting up limited companies

Changes to the property investment sector have pushed even more buy-to-let landlords and investors to set up limited companies. This further shows how the sector is professionalising.

In 2020, a total of 41,700 limited companies were set up for buy-to-let businesses. According to research by major London estate agency Hamptons, this is an increase of 23% from 2019. The numbers have even more than doubled since 2016, with a rise of 128% since tax changes for landlords were first announced.

Additionally, “letting and operating of own or leased real estate” was the second most common type of company set up in Great Britain throughout 2020. This further shows that buy-to-let landlords and investors are optimistic about the future of the sector.

Aneisha Beveridge, head of research at Hamptons, says: “We estimate that around half of all rental properties bought today are being put into a company, up from close to one-in-five during 2016.”

Tax changes impacting buy-to-let landlords

Several tax changes have come into play for landlords since 2016. This has included a 3% additional stamp duty surcharge for buy-to-let properties. Landlords could also previously deduct mortgage interest costs from their tax bill. However, this tax relief gradually reduced from 100% in 2017 to 0% in 2020.

To adapt, buy-to-let landlords have changed the way they do business, so landlords can maximise profits. Many are choosing to invest as limited companies to make their investments more tax efficient. As the number of buy-to-let landlords have reached an all-time high, the rise in landlords setting up limited companies will likely continue. Landlords with larger portfolios have been more likely to purchase property through a limited company.

However, Aneisha Beveridge comments: “While most of this growth has been driven by larger landlords, smaller landlords, particularly those who are higher rate taxpayers, have also reaped the tax saving benefits from incorporating.”

Some landlords are even transferring properties they already own to a limited company. When transferring properties, the limited company is essentially buying the property from the original individual owner. Because of that, landlords will more than likely need to pay stamp duty on it. Many landlords have used the stamp duty holiday to transfer their properties into a limited company in order to save substantial amounts.

Buy-to-let industry continues to professionalise

There has been much debate about whether it’s better for buy-to-landlords to purchase property as an individual or limited company. It really depends on your financial situation and investment strategy. As more landlords are transferring their portfolio into a limited company, many are seeing the benefits of professionalising.

There are pros and cons to operating as a limited company. The tax advantages are a big draw as landlords who invest through limited companies can make savings on their annual tax bill. However, mortgage interest rates are typically higher for limited companies than individuals. And a limited company structure also creates extra administrative obligations.

For many landlords and investors, a limited company offers a way to maximise the negative effects of recent regulation changes. It can also provide an effective way to build a sustainable property portfolio. However, it’s important to weigh up the extra costs and obligations with the tax savings. Seek professional advice to help you decide if starting a limited company is right for you.

If you’d like to read more about setting up a limited company, you can find out more in this guide. We can also put you in touch with an independent tax expert for further information.

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