More buy-to-let landlords switching to limited companies

The number of professional landlords who are switching to limited companies to avoid the potential tax charges related to new buy-to-let rules is significantly increasing.

Industry research found that landlords with a bigger portfolio, in particular, had swung to using limited company status for new purchases.

They found that almost two out of three (64 per cent) landlords with more than four properties and who planned to buy this year will use limited company status compared with just 21 per cent who intend to buy as individuals.

A number of tax and regulatory changes related to buy-to-let have led to an increase in the number of limited company structures in the buy-to-let market as landlords look for methods to obtain maximum profitability.

Landlords have faced challenges regarding profitability recently with the introduction of an additional 3 per cent stamp duty surcharge in April 2016, which was closely followed by the abolition of mortgage interest tax relief for landlords, something that is to be phased down to a 20 per cent flat rate in 2020.

The phased reduction in mortgage interest tax relief does not affect limited company landlords who can continue to offset mortgage interest against profits, which are subject to a corporation tax of 19 per cent instead of income tax rates.

Throughout the buy to let market as a whole, 44 per cent of landlords planning to purchase another property will use limited company status, however, that falls with the size of landlord’s portfolio with 17 per cent of landlords with one to three properties favouring the structure.

Two out of five (37 per cent) of smaller portfolio landlords are still planning to buy as individuals.

Experts claim that the buy-to-let market is changing and the switch to greater use of limited company status is one aspect of the development underlining the increasing maturity of the sector.

They also expect limited company buy-to-let to continue to dominate the purchase market and throughout this year and next.