"The trend towards limited company structures has accelerated in more recent years, mainly due to changes to mortgage interest relief, but also landlords considering Inheritance Tax planning"
- Jason Wilde - Paragon Bank
Seven out of 10 landlords planning to purchase a new buy-to-let property will utilise a limited company structure, research carried out on behalf of Paragon Bank has revealed.
The survey of 789 landlords in the fourth quarter of 2024 found that of those intending to purchase a new rental property in the next 12 months, 69% plan to do so via a limited company.
A quarter will purchase in personal name, with the remainder unsure.
The survey, conducted on behalf of Paragon by Pegasus Insight, found that the proportion intending to purchase through a limited company was the second highest on record, previously only beaten by 74% which was recorded in the second quarter of 2023.
Despite the growth of incorporation over the past decade, the majority of landlords, 78%, still own property in personal name.
9% own all properties within a limited company structure, although that rises to 28% where the landlord owns four or more properties
A further 13% hold a mix of personal name and limited company properties, although they are typically more heavily weighted towards incorporation, with an average of 74% of properties within these portfolios held within business structures.
The primary drivers for holding property within a limited structure are tax benefits and financial planning. Nearly half of landlords with limited company property, 45%, said the impact on personal income tax was a key benefit, with 42% citing mortgage interest relief. A third referenced corporation tax rates on profits, with 27% claiming inheritance tax planning as a benefit.
Those with no limited company property cited the costs of transferring assets into a corporate vehicle as the main barrier (52%), followed by capital gains tax uncertainty (32%) and the administration costs and effort of running a limited company (31%).
Jason Wilde, Paragon Bank Head of Mortgage Sales, said: “The trend towards limited company structures has accelerated in more recent years, mainly due to changes to mortgage interest relief, but also landlords considering Inheritance Tax planning.
“Over 80% of our customers are now purchasing within a limited company structure. As many of them operate as SMEs, adopting a business structure makes sense and is more tax-efficient. Limited companies also benefit from an interest cover ratio of typically 125%, versus 145% for higher-rate taxpayers buying in a personal name, so it broadens the availability of buy-to-let mortgage finance.”
