Increasing numbers of landlords are registering as limited companies to reduce their tax liability, an investment specialist claims.
Thirlmere Deacon says there’s been a 55 per cent spike this year alone in investors enquiring about forming a limited company.
It says its research shows a significant majority of active buy to let investors either currently operating as companies, planning to switch, or at least interested in understanding its possible advantages.
And it claims research by another company, SevenCapital, suggests just 10 per cent of BTL investors actively buying now are doing so as individuals.
Buying property through a limited company provides landlords with higher levels of tax relief and personal tax savings, although most independent advisers suggest landlords seek expert guidance on whether incorporation suits their personal circumstances.
Stuart Williams, chief executive of Thirlmere Deacon, says: “It’s not surprising that more and more landlords are running their property portfolios through limited companies. The government’s buy to let tax measures over recent years have eroded landlord’s profits.
“Since 2017, the government has brought in taxation measures that have chipped away at the tax relief previously enjoyed by private landlords, whereby they could outset their mortgage interest payments against their rental income, thus reducing their liability.”
Prior to 2017 landlords were able to offset 100 per cent of their mortgage interest payment; this has reduced annually and now none of the mortgage is deductible.
Williams continues: “The government offers a 20 per cent tax credit instead. But for higher rate tax payers this is not at all favourable and thus more and more private landlords are choosing to incorporate and run their portfolios like a business, which can significantly increase post tax profits. This was not an arbitrary move from the government by any means, as it makes income more trackable and holds landlords more accountable.”
He accepts that running a portfolio through a limited company is not right for everyone.
“Limited companies … must keep accounts detailing all income, expenditure and purchases using company money and they must have a demonstrable benefit to the business. Landlords will need to keep receipts and accurate records of any purchases they make using company money and be able to justify every penny spent.”
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