Landlords have faced various tax changes since 2016. As each new piece of legislation made it harder to succeed than the last, there has been a sharp decline in rental properties. Is a limited company the answer?
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
Statistics and figures from Hamptons International
The increase in limited companies for landlords
With legislation such as the 3% investor stamp duty surcharge and phasing out the proportion of mortgage interest deductible from tax on buy-to-lets held in personal names, being a landlord has become harder.
Investors have had to change the way they buy property and have turned to setting up limited companies to be eligible for certain tax benefits in droves.
According to Hamptons International’s latest research report, there were 41,700 buy-to-let incorporations set up in 2020. This is a 23% increase from 2019 and more than double the reported figure in 2016.
More B2L companies were set up between the beginning of 2016 and the end of 2020 than had been established in the 50 years previous. Buy-to-let incorporations were actually the second most common company founded last year and as of the end of 2020 set an all-time record with a grand total of 228,743 viable B2L companies.
Who benefits from incorporation?
With high property costs, it might be easy to see why southern-based landlords and incorporation are a good fit. It should come as no surprise that more than a third (34%) of all buy-to-let companies were in London.
London and the South East combined account for a little under half (47%) of all corporations.
Even though holding property in your name means you can offset more costs against your rental income, the benefits of the incorporation of a B2L portfolio are numerous because your mortgage interest bill is likely to be high.
Setting up a limited company is tax beneficial because landlords can offset 100% of mortgage interest against profits as opposed to the mere 20% that is allowed if you hold property in your own name. The people who benefit most are those with multiple buy-to-let properties or higher income taxpayers.
Work with a professional
A limited company isn’t right for everyone. We can take a look at your property portfolio alongside the rest of your finances and advise on the best choice for you. If you think setting up a limited company might be right for you or if you want to discuss your options, get in touch with us today.
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