Tax Office

Category: limited company

Paragon, a leading specialist lender on our panel, has reported on the large surge in buy to let landlords deciding to set up limited companies or SPVs (Special Purpose Vehicle) for managing their properties. This has in turn led to a spike in limited company buy to let mortgage applications.

In their in-depth analysis of the private rental sector (PRS), Louisa Sedgwick – Paragon’s managing director of mortgages – identifies the primary drivers for growth. 

The company has also studied how the wider buy to let market has been impacted by this gradual shift in landlord behaviour.

Tremendous growth

Data from Companies House shows that there are approximately 400,000 incorporated buy to let businesses in England and Wales. 680,000 buy to let properties are currently held under limited company ownership. 

The latter statistic has been increasing by up to 100,000 every year, which shows that this area of the PRS is growing at a tremendous rate. This accounts for both newly formed SPVs, as well as properties that were originally owned in landlords’ personal names before being moved into limited company ownership.

Survey results

Paragon’s survey of 500 landlords indicates that limited companies are rapidly becoming the ownership method of choice for landlords. 29% of survey respondents confirmed that they have properties in limited company structures, while 23% own properties in their personal names.

However, a mixed approached of owning some properties in limited companies and others in personal name was the most popular method of holding property. 36% of respondents said they had taken this route.

Overall, two thirds of landlords questioned had set up at least one SPV. The report notes that younger landlords at an earlier stage in their careers are more likely to invest via limited companies.

Motivations

It will come as no surprise that Paragon identified tax efficiency as a major motivator for landlords looking to incorporate. 

85% of those asked said that gaining the ability to offset mortgage interest payments and other fees against rental income before paying tax was their main reason for incorporating. 62% preferred the prospect of paying corporation tax to income tax.

A large portion of respondents saw incorporation as a smart strategy for inheritance or succession planning, while others simply preferred to keep business and personal finances separate. 

Incorporation can also represent a significant step for landlords aiming to make a full career out of property investing and expand their portfolios. This is evidenced by the higher average number of properties managed by limited company landlords (13.7) compared to individuals (4.9).

What the future holds

Two thirds of landlords questioned by Paragon said that they anticipate adding new property purchases via limited companies. As such, the future of the PRS looks to be teeming with incorporated landlords.

It is worth bearing in mind that, while SPVs carry benefits, they may not be equally beneficial to all landlords. Setting one up is a complex process, and not every landlord may find the tax efficiencies to be significant enough contributors to their overall yields, given the costs of incorporation.

It is important for any landlord to seek professional accountancy advice when weighing the pros and cons of each method of property ownership. 

At Commercial Trust, many lenders offer the same or similar rates to both individual borrowers and limited companies. So, regardless of how landlords plan to invest, there are plenty of mortgage options available. Contact us today – our advisors will be happy to explore great deals that suit your needs and circumstances.