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 *
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Only thing that I dislike about using ltd companies is the increase in mortgage interest rates and costs ( supposedly due to the increased risk to the lender) but then they want a directors guarantee. So this reduces the lenders risk do they should reduce the interest rate back to that of a standard mortgage.
The whole incorporated thing is another layer of complication and accountancy fees.
When I started out as a landlord I didn't know how many houses I would eventually own. My accountant was adamant buying them in personal names was the best thing to do. Back then the tax system was totally different and none of the super enhanced tax rates that only apply to landlords had been invented.
My most recent two purchases have been through a limited company but mortgages have been so difficult to obtain I finished up paying cash for both. It was far easier to release equity from personally held properties to fund the company. One of the flats had a very short lease and I had intended mortgaging it after extending the lease and doing a full renovation but the mortgage products and extra legal costs are crazy. The other one would have been mortgaged if the broker hadn't ticked the wrong box on the application form and then failed to correct his mistake before rates shot up. The lender insisted on us using one of only 8 conveyancing companies in the whole country that they approved for limited company transactions. We've used the same lender for personal remortgages and thousands of solicitors are fine for that.
The good bits about having a company are that the money can be paid as salary, which then gives a NI credit, can be paid into a SIPP (which then extends your tax code) or straight into a pension. Either way it's better from an old age and death point of view. The trivial benefits and company Christmas do are nice.
I basically don't understand all the other beneficial things that might happen if we incorporated all our personally held properties. I keep buying books and losing the will to live about a third of the way through. The thing that really scares me is reading articles about how landlords paid large fees for advice that was wrong and now face huge financial penalties to sort it out.
Hmmm till labour when in start to tamper with things and tax the Ltd company way. Can’t understand why MP’s who have no f idea tamper with things . And make em worse. If it works don’t touch it.
Watch gb news it soons become clear that politicians are ideologically driven. Blind faith etc
And to Jo, keep your deeds close to you, land fraud is, frankly rife. However l looked up those mortgage companies you use and they seem to specialise in bad risks. It's not a good idea to put your assets in a limited company, because risks are limited to the limited company. Putting assets into a limited company is good for creditors. When companies are taken over the assets are often sold off and replaced with debt (hollowing out! ). Debenhams etc probably two major supermarkets !
The anti fraud thing is a good idea in theory and very straightforward to set up. However, when remortgaging it can be very expensive to get a conveyancer to provide the necessary certificate. Prices ranged from £90 (when my regular solicitor stopped being off sick) to £600 for his colleague. An online one would have been £200 but the lender took weeks to decide if an online one was acceptable, by which time my regular solicitor had reappeared.
The lenders I use are about as mainstream as they come. TMW (part of Nationwide), Barclays, Leeds Building Society, Coventry, Birmingham Midshires, Paragon and Fleet. None of them are exactly unknown or specialize in bad risks.
I am currently looking at becoming a Limited Company, I am being told that I can put my properties into a Limited Company and not pay stamp duty or CGT. Ig I then sell, due to the fact that the LTD company has bought the house at current value the CGT will be minimal. I cannot get to the money, as such, when I sell the house but can use it to pay down existing debt. Well this is what I want to do anyway.
Once back in profit I can then pay myself and partner on a self employed basis (i need to check this) and also get dividends subject to the company affording them.
To me it all sounds too good to be true but will look into it further and see where it takes me.
Andy
If you sell your property to a limited company you will have to pay cgt on the sale. Please advise if you know different.
Jo
That's a lot of lenders. I would only describe Barclays as maun stream. I would describe your borrowings as business loans, otherwise renters will claim that they are paying your mortgage.
Edwin - do you ever research anything before making uninformed comments?
According to statista Nationwide is by far the largest BTL lender by value of gross lending (7.43billion). Barclays is 6th on the list with lending of 2.38 billion.
The only lender I have that wasn't in the top 15 lenders is Leeds Building Society.
A portfolio landlord is likely to use assorted lenders because each lender has a different lending criteria and won't lend on certain types of properties or number of owners. For example TMW (Nationwide) will only allow 2 owners and won't lend on a house if you already own the adjoining one.
Several lenders won't lend if you have more than 10 BTL mortgages.
Some don't lend on HMOs.
BTL mortgages are usually interest only so technically no one is actually paying for the chunk of house that is mortgaged. The landlord has put in however much deposit or bought the property outright and expects a return on their investment. They're the one taking all the risk so of course they expect to make a profit. The PRS isn't supposed to be a charity. Now savings accounts are paying better interest it's questionable if there's any financial point in being a landlord right now.
If you were a landlord you would know that owning a house has a great many costs other than mortgage interest. Insurance, safety inspections, licensing fees, repairs, maintenance, etc. All of these things are paid for from the rent.
I would love it to be classed as (and taxed as) a business. Most of the problems causing the current housing crisis are linked to the government not treating the PRS as a business. Whether that's taxing us on turnover or trying to dictate who we let to and for how long.
Hi Edwin, I don't know any different but am trying to find out. I had a conversation with less tax for Landlords back in 2018. They told me to become a limited Company Partnership. This is a recognised process apparently. Therefore when you sell your house to the Limited Company you pay minimal CGT and likely none at all. Then when the limited company sells the house, because on paper it has been bought at current value there is very little if any profit. Because you pay CGT on profit there is none to pay. However, you cannot take the money out of the company as this could trigger tax evasion. But you can use the money to pay down debt in the Limited company.
This is a very simplified explanation and there are several hoops and hurdles to negotiate.
As i intend to pay down debt this could or should work for me. I also need funds to turn one or two houses into maisonettes or possibly flats. My lenders are happy with this subject to necessary planning consents, in this way I can get myself back on track.
My intention had been to sell, but the market is pretty rubbish now and I believe will be like this for longer than I had initially thought.
I wondered if any on here had looked into similar or possibly have done what I am looking into.
I did not pursue this in 2018 as it was not going to make much difference to me, however with the new mortgage rates it has seriously impacted. Plus back then the going rate was around £4-5,000 per house now it's £1500-2000.
If you want to know more look at section 162 relief!
Andy
There are structures and smart Ltd Co's where you avoid both CGT and SDLT when incorporating and the properties are adopted by the Ltd Co at today's values not at the price you paid for them. Check out the reviews and info on Property 118 / Cotswold Barristers ( Mark Smith, head of Chambers ) for more info.
Their advice etc and legal proceduires are guaranteed by Cotswold Barristers to comply with all HMRC requirements and are all perfectly legal
Thanks Paul and yes I am looking at 2 companies to possibly do this with. Can you personally recommend tax 118?
Jo
I have been renting property for over 30 years. My mother had HMOs.prior. I could tell you lots of horrendous stories, tenants are a reflection of society. What is going on is basically a land grab. Most landlords use agents to raise loans, if you borrow via an intermediary you have to pay for that. If a bank loans via a subsidiary it's done for a reason, normally to shield the bank. It's not uniformed comment, lve looked at some of those people you have borrowed from. NatWest bank ripped me off in about 1985. I personally have worked on v sophisticated equipment. If you have any advice on how to reduce cgt let me know My account has told me it's a legal practitioners job, at,£300 an hour it's crucifying.
Leon, you are right. Most mortgage lenders have separate rates for personal and ltd mortgages. If they want the director guarantee, there is no risk, so does not make any sense to charge higher rates. This is why I pay high rates of 3.84% on 2 of my limited company properties. They are now going up to 6.84%, if I remortgage with them for 5 years. I do not wish to tie down, in case I wish to sell them within the next 3 years. I shall have to make sure that I keep my borrowings high on personal b2l mortgages and smaller mortgages in ltd. Other mortgages in ltd properties are less than 3% until end of 2027, by which time, I shall try and pay 10% capital per year, in one or 2 of them to reduce the mortgages. Yes, there is a cgt and a stamp duty, both if one sells the personal b2l propery to their ltd company. There are companies, who have been saying there is a loophole. But at the end of receiving incorrect advice can mean costing a lot to the landlord.
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