41,700 buy-to-let Limited companies formed in 2020

41,700 buy-to-let Limited companies formed in 2020

11:20 AM, 18th January 2021, About 4 years ago 1

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Research by Hamptons Countrywide has revealed that 41,700 buy-to-let Limited Companies were formed last year, which is a new record. In fact, the only category of Limited Company formations to beat this number was online shopping stores.

Property118 has yet to check and confirm these numbers, but it should be relatively straightforward to do via Companies House but the report also suggests that at the end of 2020 there were a total of 228,743 buy to let companies up and running, again an all-time record. More than a third of these buy to let companies are based in London; add in those based in south east England, and this comes to 47 per cent of all BTL companies.

We will now expend upon this research, to see how many of these buy-t0-let Limited Companies have only one class of ordinary A shares, because this is a very good indication to what level of thought has gone into tax-planning.

Do not settle for a single class of shares!

Ordinarily, shareholders in a company own just one type of shares, called ‘ordinary’ shares. These have:

  • Voting rights
  • Dividend rights
  • All capital appreciation attributed

However, it is possible to create multiple classes of shares so that differing levels of dividends can be declared to each class of shares. From a tax planning perspective, this can be useful for a family business where the shareholders have different levels of income from other sources. Likewise, it is possible to create a class of shares that initially have a nominal initial value, because they have no voting rights, no capital value and no automatic rights to receive dividends. This class of shares is ideal for inheritance tax planning because future growth in the value of the business can be attributed to them, and they can be gifted without tax implications whilst their value is negligible.

The Property118 tax team have put a label on this form of tax planning – “SMART Property Company structuring”.

The good news is that it is never too late, even if you already have an ‘ordinary’ single class of shares structure. It can be modified.

Likewise, if you have been considering the formation of a property company for your future investment acquisitions, please don’t settle for an ordinary ‘off-the-shelf’ property company. A cheap set up could end up costing you dearly in the longer term. Get your foundations right before you start building!

Tell us about your future property investment aspirations by completing our enquiry form and we will be happy to provide you more information about what is possible and even arrange a ‘one-to-one’ recorded video consultation with one of our landlord tax planning consultants and recommended Barristers-At-Law.

Landlord Incorporation Specialists


This case study explains why so many Buy-To-Let companies have been formed and why 85% + of all new Buy-To-Let mortgage applications are now in the name of a Limited Company, by comparing the tax position of a private landlord against that of a private hotelier.

Let’s assume that both businesses own assets worth £2,000,000 and have 75% LTV mortgages secured on them at an interest rate of 5%. In other words, their annual finance cost bill is £75,000.

Now let’s assume that both businesses make profits after finance costs and all other expenses of £50,000.

The hotelier will pay £7,500 of income tax. This is broken down as follows; £nil on his first £12,500 of net profit and 20% tax on the next £37,500.

However, the private landlord cannot treat his finance costs as a legitimate cost of business in the same way as the hotelier. Accordingly, his tax bill is £27,500. This is because his taxable income is treated as being £125,000 due to being unable to claim his finance costs as business expenses. Furthermore, for every £2 of taxable income over £100,000 he loses £1 of his nil rate tax band.  Accordingly, the landlord pays tax at a rate of 20% on the first £37,500 (which equates to £7,500) and then 40% tax on the other £87,500 (which equates to £35,000). This adds up to a whopping £42,500. The government then grant him a tax credit equal to 20% of his finance costs, in other words £15,000 off the £42,500 leaving him with a net £27,500 of tax to pay.

To summarise, the private landlord pays more nearly four times as much tax as the private hotelier, even though their financing costs and business results otherwise produce identical levels of actual profit.

HOWEVER, if both the landlord and the hotelier operated their businesses within a Limited Company structure, they would pay exactly the same amount of tax.

There are, of course, many other reasons for private rental property businesses to consider incorporation. These might include the following:-

  • Since the Prudential Regulation Authority changed the rules on buy-to-let mortgage affordability criteria, Limited Companies can borrow significantly more than private landlords based on rental income calculations – details HERE.
  • There are far more opportunities for property company owners to accrue future capital appreciation of property outside of their personal estates for inheritance tax planning purposes – details HERE
  • You may be able to structure your finances in such a way that you do not need to declare taxable dividend income – details HERE
  • If you live outside the UK the ability to be able to structure your finances to enable you to withdraw capital from your company tax free are significantly enhanced – details HERE
  • If you decide to live in Portugal you may be able to take dividends out of your company without paying income tax in either Portugal or he UK for up to 10 years – details HERE

It would be remiss of me to point out that incorporation is not a ‘one-size-fits-all’ strategy. In fact, we only recommend it to around 1 in 10 landlords who book landlord tax planning consultations with us. There are several alternatives, especially if you have relatives who are not higher rate tax payers and you are considering business continuity and legacy planning as well as your income tax position. The key point is that you should seek specialist guidance from a Property118 tax planning consultant, who will prepare a bespoke report and recommendations for you before referring you to a Barrister-At-Law to adopt those recommendations as his own professional advice, for which he carry’s professional indemnity insurance of £2,500,000.

Show Book a Tax Planning Consultation

Please visit the book a tax planning consultation page to book your consultation!

If you ever consider transferring your property rental business into a Limited Company (which all landlords absolutely should do) there are four important considerations you must not overlook:-

  1. How much better off will you be? To help you to calculate this we have developed software you can download for just £97 – details via THIS LINK
  2. Will CGT be payable? Given that you will be selling your properties to the Limited Company, you will be crystalling your capital gains. Ordinarily, this would mean that Capital Gains Tax is due. However, in certain circumstances, ‘incorporation relief’ will enable you to roll some or all of the capital gains into shares in your Limited Company which you exchange for equity in your properties. The rules are explained HERE. The software mentioned above also calculates the CGT position for you.
  3. Will the company need to pay Stamp Duty when the properties are transferred into it? Given that the company is essentially buying the properties from you, Stamp Duty would ordinarily apply. However, in certain circumstances, relief is available. The rules are explained HERE. The software mentioned above also calculates the Stamp Duty position for you.
  4. Will you need to refinance? The costs of refinancing can be extremely high. Furthermore, if you are tied into mortgage deals with early repayment charges or you have particularly competitive financing terms already, it may not be economically viable for you to apply for new mortgages in the Limited Company name. However, there are legal structures available which enable you to defer new financing until it is financially viable for you, or to the end of the existing mortgage term. Details HERE.

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Reluctant Landlord

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10:08 AM, 20th January 2021, About 4 years ago

Would the tax savings be of the same comparable if instead of BTL mortgages, the LL took a loan for say 40 % of the value of the property purchased (the rest paid cash)? Better for the LL to still set up as a Limited Company? Other tax advantages?

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