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Buy-to-Let Investors Are Switching to Limited Companies

As a raft of tax changes and lending rules make landlords lives more difficult, more investors are choosing to purchase buy-to-let properties through a limited company.

Incorporation, setting up a limited company with which you then buy and manage buy-to-let properties, is now being seriously considered by 38% of landlords over 2018.

This is according to research by the National Landlords Association (NLA), which shows that for landlords with four or more properties, 42% are looking to operate through a limited company. This number drops slightly for investors with three properties, 31% would be looking to do the same.

As landlord tax changes begin to take effect, one of the main concerns is the reduction in how much a mortgage interest payment can be offset against tax. Stricter lending criteria for portfolio landlords is another. It’s at this point that purchasing buy-to-let property through limited companies becomes a possibility.

Limited companies can offer flexibility and allow landlords to claim more tax relief. As always it’s important to get advice from a tax expert as despite the advantages, each individual’s circumstances are different and need to be considered.

Here’s why some investors might be looking at using a limited company:

Better Tax Rates on Profit

If you simply own your property in your own name, any rental income you make will be taxed under income tax. If you own the property as a company, the profits can be taxed using Corporation Tax instead, which in most cases is around half of the highest bracket of income tax. You can also take advantage of the flexibility, timing dividends for yourself or even collecting profit to use on the next property.

Mortgage Interest Changes

As of 2020, landlords will no longer be able to claim mortgage interest as an allowable expense. It will however, still be allowable for companies.

Flexible Planning for Inheritance Tax

Holding property within a company offers many more options when it comes to planning for Inheritance Tax, although you should always consider speaking to an expert about your individual case.

With nearly 15% of landlords planning to increase their portfolio next year according to the research, we can see why limited company incorporation is becoming more commonplace. A poll by Precise Mortgages shows that 89% of brokers expect to see a rise in the number of landlords setting up limited companies and reaping the benefits.

There’s many different factors to consider when discussing limited companies. As always, it’s important to seek professional advice before making any decisions.

You can read more about the tax relief changes and how it affects Buy-to-Let investments here. 

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