BTL landlords shift to a limited company structure for investing

Seven in 10 landlords planning to expand their portfolios this year intend to buy new buy to let properties through a limited company, research reveals.

A survey conducted for Paragon Bank reveals that 69% of these landlords will opt for this structure, the second highest figure recorded.

Only a quarter of landlords will purchase in their personal name, with others undecided.

Trend towards limited company structures

Paragon’s head of mortgage sales, Jason Wilde, said: “The trend towards limited company structures has accelerated in more recent years, mainly due to changes to mortgage interest relief, but also landlords considering Inheritance Tax planning.

“Over 80% of our customers are now purchasing within a limited company structure.

“As many of them operate as SMEs, adopting a business structure makes sense and is more tax efficient.”

He added: “Limited companies also benefit from an interest cover ratio of typically 125%, versus 145% for higher-rate taxpayers buying in personal name, so it broadens the availability of buy to let mortgage finance.”

Most properties are in a landlord’s name

While incorporation has grown, most landlords (78%) still hold properties in their own name.

However, 9% own all their properties via a limited company, rising to 28% for those with four or more rentals.

A further 13% use a mixed approach, typically favouring incorporation.

Tax and finance planning

Tax advantages and financial planning are key motivations – for 45% of landlords with limited company properties, personal income tax benefits are crucial, while 42% cite mortgage interest relief.

Corporation tax rates influence 33%, and 27% mention inheritance tax planning.

Those without limited company properties often highlight transfer costs (52%), capital gains tax concerns (32%) and administrative burdens (31%).