A growing number of landlords are turning to limited company structures for their buy-to-let (BTL) investments, according to recent research conducted on behalf of Paragon Bank. The study found that nearly seven in ten landlords planning to purchase a new BTL property intend to do so through a limited company.
The survey, conducted in the fourth quarter of 2024 by Pegasus Insight, polled 789 landlords and revealed that 69% favoured the incorporation route, marking the second-highest percentage recorded. The only time a higher proportion was observed was in the second quarter of 2023, when 74% of landlords expressed a preference for limited company ownership.
Despite this trend, the majority of landlords still hold properties in their personal names. The survey indicated that 78% of landlords retained some or all of their portfolios personally, while only 9% exclusively operated through a limited company. The prevalence of limited company ownership increased among landlords with larger portfolios, reaching 28% among those with four or more properties. Additionally, 13% of respondents reported a mixed approach, holding an average of 74% of their properties under a limited company structure.
Tax benefits and financial planning were cited as the primary motivations for landlords incorporating their BTL holdings. Nearly half (45%) of landlords with properties in limited companies highlighted personal income tax advantages, while 42% pointed to mortgage interest relief as a key incentive. Other factors included corporation tax rates (33%) and inheritance tax planning (27%).
However, challenges remain for those considering incorporation. Among landlords who have yet to transition to a limited company structure, the primary obstacle was the cost of transferring existing assets, cited by 52% of respondents. Concerns over capital gains tax (32%) and the administrative burden of running a limited company (31%) were also significant deterrents.
Jason Wilde, head of mortgage sales at Paragon Bank, attributed the growing trend toward incorporation to regulatory changes in mortgage interest relief and an increasing focus on inheritance tax planning. “Over 80% of our customers are now purchasing within a limited company structure,” Wilde noted. “As many of them operate as SMEs, adopting a business structure makes sense and is more tax efficient.”
He also emphasized the financial advantages of limited companies in securing BTL mortgage finance. “Limited companies benefit from an interest cover ratio of typically 125%, compared to 145% for higher-rate taxpayers buying in a personal name. This broadens the availability of mortgage finance for landlords.”
As landlords navigate the evolving tax landscape, the shift towards limited company structures appears to be a strategic move aimed at optimizing financial returns and ensuring long-term sustainability in the buy-to-let market.