The landscape of property investment in the UK has seen a significant shift in recent years, with a growing number of landlords opting to operate through limited company structures. While this approach offers tax advantages, it’s crucial to recognize that it might not be suitable for every scenario.
The latest research from Easy Offices, utilizing data from Companies House, reveals a remarkable trend: the number of landlords owning properties through limited companies nearly doubled between 2019 and 2022, rising from 15,800 to an impressive 28,130.
This surge is attributed to several factors, one of which is the Section 24 tax changes that came into effect. These changes restricted the amount of income tax relief landlords could claim based on mortgage interest payments, leading some to face higher tax bills. By operating through a limited company, landlords shift their tax liability to corporation tax, which can be a more cost-effective option in specific circumstances.
The post-pandemic era has further accelerated this trend, with a notable increase in younger landlords embracing limited company ownership. The number of landlords under 50 registering limited companies jumped from 107 in 2019 to 1,178 in 2022. However, the majority of this investor type, comprising 40% of the total, remains in the over-50 age group.
A closer look at the data reveals location trends, indicating a concentration of limited company ownership among younger landlords in cities such as London, Manchester, Birmingham, and Leeds. This pattern is likely tied to the rise of young entrepreneurs starting their businesses after the pandemic.
John Williams, Chief Marketing Officer at Easy Offices, highlights the significance of this surge: “This spike of new businesses following the pandemic shows how it drove a large number of people to take bold steps. We have seen the number of sole traders and small businesses looking for office space leap year-on-year. This trend is based on a lot of more experienced workers leaving behind their white-collar jobs with blue-chip companies and looking to start their own ventures after the pandemic. It is the rise of the midlife entrepreneur, similar to that we saw in the aftermath of the Global Financial Crisis in 2008.”
The decision to utilize a limited company structure for property investments hinges on various factors, and the pros and cons will vary from one situation to another. Seeking professional and independent advice is highly recommended.
A survey conducted by GetGround in December highlighted some of the key benefits reported by investors. An impressive 93% of respondents found their investments to be more profitable within a company structure. Additionally, 57% highlighted the significant advantage of limited personal liability, along with the ability to collaborate on investments with multiple partners. Furthermore, 78% of respondents noted that this approach helped them mitigate the impact of inflation.
Nonetheless, it’s essential to consider potential drawbacks. For smaller landlords, especially those with just one property or those in the lowest income tax bracket, the tax benefits might be less substantial. Additionally, transferring existing property investments to a company structure incurs stamp duty and other costs. Many landlords opt to place new investments within their limited company structure while maintaining ownership of existing properties personally.
Securing a mortgage for a limited company buy-to-let is generally more complex and expensive compared to a standard buy-to-let mortgage. The initial costs associated with setting up and running a limited company should also be carefully evaluated by landlords contemplating this switch.