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Buy-to-Let: Investing with a Company

In recent years, there has been a dramatic increase in the number of landlords who have been setting up a company for buy-to-let investments rather than personally owning their own investment properties. According to Companies House statistics, a record-high 47,400 new buy-to-let companies were formed in the UK in 2021.

Section 24’s revisions in 2017 has been a major factor in this development. Mortgage interest deductions are no longer available to investors who own homes in their own names. Individual landlords are taxed on their turnover revenue, whereas businesses are taxed on their profits. Some landlords, particularly those who pay higher taxes, have found that moving their buy-to-let properties into businesses has proven more profitable.

The rate of new incorporations grew by 14 percent between 2020 and 2021, compared to a 30 percent increase between 2019 and 2020. This year’s growth was lower than in prior years.

In 2021, the number of new buy-to-let incorporations is predicted to be close to its high, with fewer expected to be established in 2022. This is in part due to the stamp duty break from last year, which helped to stem the decline in the number of new investors entering the buy-to-let market. Furthermore, investors who sought to save money on taxes by moving real estate from their own names to the names of their companies had five years to make the switch.

company for buy-to-let investments - paperwork

A total of 269,300 UK buy-to-let businesses were up and operating by 2021, up from a previous total of 200,000 when the country initially emerged from the first lockdown. Sixty-one percent of these corporations were formed after April 2017, when mortgage interest reduction was phased out.

Interestingly, it has been the smaller landlords, as opposed to huge institutional investors, that have accounted for the majority of the increase in buy-to-let business owners in the last six years or so. When it comes to landlords who own properties in their personal names, just 20% of buy-to-let enterprises have more than three mortgaged properties.

Where are buy-to-let businesses being set up?

The location of annual rises in buy-to-let investments being set up as businesses can be discerned in the following statistics, shown with the largest first:

  • Northern Ireland 36%
  • Scotland 23%
  • Wales 15%
  • East Midlands 14%

Last year, over 15,000 new businesses were established in London and the Southeast, accounting for 45 percent of all company formations.

Because the average rent in these locations is higher, landlords are able to take advantage of additional tax advantages. The Northeast was the only region in the UK where the number of new buy-to-let businesses fell by 6% year on year.

Why is setting up a company for buy-to-let investments beneficial?

A tax on turnover is due by landlords who are sole proprietors of their properties, whereas a tax on profits is due by landlords who are corporations. The difference between turnover and profit is substantial. Because of government restrictions on buy-to-let tax relief, some landlords may find it more financially advantageous to convert their investments to company ownership.

Incorporation has a number of other advantages, such as:

You won’t be taxed (e.g., capital gains tax and inheritance tax) on the transfer of your assets to a limited company because of the ‘limited liability’ (which means only the money you’ve invested in the firm is at risk) that provides greater legal protection.

As a limited corporation, you will be subject to corporation tax, which is typically lower than you would pay for individual income tax rates.

Despite the benefits, there are some drawbacks to keep in mind, such as higher expenditures and additional administrative work, such as filing accounts and returns. Furthermore, securing a buy-to-let mortgage for a limited company is harder as lenders have stricter criteria to meet. However, this has changed somewhat in recent years as lenders have been increasing their mortgage products available to accommodate the growth in buy-to-let businesses.

Another thing worth bearing in mind is that a switch to a limited company will come with costs. In addition to this, any profits taken from the company will be subject to income tax.

As a result of the above, you’ll want to think very carefully about the benefits and drawbacks of each option and seek expert advice where necessary.


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