Conveyancing: what is it and how could it be improved? landlord licence

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.

Self-certified Sophisticated Investor

Please read

I declare that I am a self-certified sophisticated investor for the purposes of the restriction on promotion of non-mainstream pooled investments. I understand that this means:

I am a self-certified sophisticated investor because at least one of the following applies:

I accept that the investments to which the promotions will relate may expose me to a significant risk of losing all of the money or other property invested. I am aware that it is open to me seek advice from someone who specialises in advising on non-mainstream pooled investments.

High Net Worth Investor

Please read

I make this statement so that I can receive promotional communications which are exempt from the restriction on promotion of non-mainstream pooled investments. The exemption relates to certified high net worth investors and I declare that I qualify as such because at least one of the following applies to me:

STAY AHEAD OF THE MARKET

Sign up for first access to new developments and exclusive property investment opportunities.

We send limited and targeted emails on new launches and exclusive deals which best fit your areas. We are trusted by over 30,000 active buyers as their source for new stock.

  • New property developments
  • Professional market reports
  • Property deal alerts
  • Development updates
Manchester property investment

FIRST FOR NEWS AND KNOWLEDGE.

Receive trending news straight to your inbox and stay up to date on all of the property market trends and advice.

Established since 2005 we are a leading voice of authority and commentary on the UK property market. Our news is trusted by Apple News & Google News.

  • UK housing market
  • Mortgage & money
  • Buy-to-let landlords
  • Guides & advice

Talk to us

Speak to our UK property experts today:

 

+44 (0) 333 123 0320

Open from 9am-6pm GMT

 

+852 6699 9008

Open from 9am-6pm HKT