Over the past year, we have witnessed an increase in the proportion of landlords opting to acquire properties through limited companies. 

This strategic move brings about several positive implications and reflects portfolio landlords’ position as small to medium-sized businesses. By adopting a suitable company structure, not only can operational efficiency be improved, but it also enhances the perception of landlords as professional entities.

The advantages of limited company ownership are clear. These entities can offset mortgage interest, finance costs and mortgage arrangement fees against rental income. In contrast, landlords with properties in their personal names are liable for income tax on rental income, which can potentially be tax-inefficient. 

Furthermore, limited company ownership can offer more favourable mortgage financing options. Lenders typically set interest coverage ratios at 145% for higher-rate taxpayers, whereas limited company applications require a ratio of 125%. Additionally, limited company landlords can generally secure higher loan amounts, further driving the adoption of this approach.

Our recent survey of landlords revealed those who hold all their properties within a limited company structure are more likely to make their full-time income from their lettings business compared to those who hold properties in personal names. In fact, 43% of limited company landlords reported earning a full-time income from property, compared to 26% of individual landlords.

The trend towards limited company lending is evident, with a separate survey of intermediaries highlighting that nearly half expect an increase in the proportion of limited company portfolio landlord lending in the next 12 months. Furthermore, 62% of landlords plan to buy their next property within a limited company structure, indicating a significant increase from previous years.

While limited company ownership has traditionally been associated with portfolio landlords, I believe the next generation of portfolio landlords will consider this approach from the outset. Acquiring properties within a limited company structure from an earlier stage will become the norm, as brokers become more experienced in limited company lending and understand their customers’ portfolio ambitions.

Transitioning properties from personal name to limited company structures may present greater challenges, as it can incur Stamp Duty and Capital Gains Tax charges. 

However, there are options available, such as Incorporation Relief, which can help reduce Capital Gains Tax. We strongly advise consulting with a tax advisor to determine the best course of action based on your specific circumstances. Notably, Paragon is one of the few lenders that permit customers to switch from personal name to limited company ownership during a fixed-rate period, and we have seen an increase in customers choosing this option.

Although we currently face challenging conditions in the market, it is important to recognise that disruptive events often bring about lasting changes. 

The acceleration of limited company lending is one such enduring transformation. While the market will eventually stabilise, this trend is likely to continue.

* Richard Rowntree is Paragon Bank Managing Director of Mortgages *