"Landlords have increasingly used limited companies to mitigate the impact of tax changes phased in from 2016. This has accelerated in recent years as more landlords have looked for ways to run their businesses more efficiently amidst a challenging economic environment."
- Louisa Sedgwick - Paragon Bank
Landlords who utilise limited company structures have incorporated an increasing proportion of their portfolios over the past four years, according to Paragon Bank research.
In Q2 2020, 48% of the portfolio of the average landlord who utilises a limited company structure was incorporated, a figure that has risen to 81% in the second quarter of this year.
The research, carried out by Pegasus Insight, suggests that this trend is set to continue. Of the landlords who say they intend to buy in the next 12 months, 67% plan to do so through a limited company. This proportion has also grown significantly since the second quarter of 2020 when it stood at 45%. In contrast, only 31% plan to buy in a personal name, falling from 36% during the same period.
The strategy is adopted by more experienced landlords as the propensity to own properties through limited companies increases with portfolio size. This ownership mechanism is adopted by 37% of landlords who have four or more buy-to-let mortgaged properties, compared to 15% amongst those with between one and three buy-to-let homes.
Separate research undertaken for Paragon’s Mortgage Intermediary Insight Report (MIIR), shows that brokers agree. Paragon’s summer wave of the report revealed that growth in business written for portfolio landlords who utilise limited company structures is anticipated by six in 10 (60%) brokers over the next 12 months, following a notable increase of 11 percentage points since the previous MIIR in Q1 2024.
Louisa Sedgwick, Managing Director for Mortgages at Paragon Bank, said: “Landlords have increasingly used limited companies to mitigate the impact of tax changes phased in from 2016. This has accelerated in recent years as more landlords have looked for ways to run their businesses more efficiently amidst a challenging economic environment.
“It’s really encouraging to see that brokers appear to be switched on to this because, despite the growth, 78% of landlords still hold their properties solely in individual name. While incorporation isn’t necessarily the best option in every situation, and landlords should seek advice from a professional financial or tax adviser, this highlights the opportunity for those that place this type of business.”
