One in three landlords are planning to incorporate

One in three landlords are planning to incorporate

9:22 AM, 7th November 2023, About 7 months ago

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A third of landlords who own rental property in their personal name are planning to switch to a limited company structure in the next three years, research reveals.

Paragon Bank says it surveyed more than 1,000 landlords and also found that 37% said it was unlikely that they would incorporate.

The main reason for not incorporating was tax, cited by 56% of those with property in a personal name, followed by a lack of information on how to incorporate (36%) and fewer mortgage options available (26%).

The report also found that nearly a quarter of landlords (23%) own all their rental properties within a limited company structure, 31% hold a mix of personal name and limited company properties and 34% hold all properties in personal name.

‘Landlords who hold property in a limited company structure’

Richard Rowntree, Paragon’s managing director of mortgages, said: “There has been a significant increase in the number of landlords who hold property in a limited company structure over the past six years as the Government started to phase out Mortgage Interest Relief from 2017.

“Many landlords who own property exclusively within a limited company structure have done so from the off and that is reflected in the demographic of this group, which is typically younger than those with personal name or mixed portfolios.”

He added: “There is a clear desire for a large proportion of landlords with property in personal names to incorporate, but barriers persist, such as having to pay Stamp Duty and Capital Gains Tax.

“We would advise landlords in this position to speak to a tax specialist who can offer guidance on the most suitable route available.”

Clear shift in the structure of property ownership

Paragon’s report also reveals that there has been a clear shift in the structure of property ownership from when landlords acquired their first rental property, with 71% of landlords initially holding property in their personal names.

This suggests that landlords have pivoted towards the limited company option as they have built their portfolios, either through incorporation or acquiring new property in a limited company structure.

The report also revealed that:

  • Limited company ownership does not necessarily translate to experience. While 46% of those who own property exclusively within a limited company have more than 11 years’ experience, 33% only have up to five years’ experience
  • 85% of landlords who own property in a personal name have 11+ years’ experience
  • Portfolio sizes are typically smaller for those with limited company portfolios – 57% of these landlords have four or more properties, compared to 68% for those unincorporated landlords and 87% for mixed portfolios
  • Limited company landlords have a greater propensity to purchase property – 25% plan to increase the number of properties in their portfolio over the next 12 months, compared to 4% of those who are unincorporated.

For more information about landlord tax and incorporation, contact Property118’s experts:

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