Record Number of Landlords Opting for Limited Company Ownership

The chart indicates that 74% of landlords planning to buy property in the next year intend to use a limited company structure, while 17% plan to buy in an individual name

October 2, 2023

A record-breaking 74% of landlords intending to purchase property in the next year are exploring ownership through a limited company structure, as revealed by recent data from a Paragon Bank survey of 1,000 landlords. Conversely, those planning to buy properties in their individual names have dwindled, falling from 41% in the final quarter of 2021 to just 17% in the second quarter of this year.

Key Tax Advantages and Considerations

The driving force behind this shift appears to be the enticing tax advantages associated with owning property via a limited company.

However, the decision to buy property through a limited company structure isn’t a one-size-fits-all solution and should be evaluated on a case-by-case basis. Here’s a closer look at the pros and cons:

Advantages

  1. Tax Deductibility of Mortgage Interest: Unlike individuals, limited companies can still fully deduct mortgage interest expenses, offering significant tax benefits.
  2. Lower Corporation Tax Rate: Profits from properties held within a limited company are subject to corporation tax, which is typically lower than the higher and additional rates of income tax. This structure also allows for tax planning opportunities.
  3. Simplified Succession Planning: Passing on property held in a limited company after an individual’s passing is more straightforward and can potentially reduce inheritance tax, stamp duty, and capital gains tax.

Disadvantages

  1. Higher Mortgage Rates: Limited companies often face higher mortgage interest rates and fees compared to individuals, despite lower interest coverage ratios being required.
  2. Increased Administrative Responsibilities: Operating a limited company involves additional administrative tasks, including filing accounts and tax returns, and potential penalties for missed deadlines. Compliance with the ATED (Annual Tax on Enveloped Dwellings) regime may also be necessary, incurring additional costs.
  3. Tax Avoidance Schemes: Beware of tax avoidance schemes marketed by some professionals that promise tax savings when transferring individually-held properties into a limited company. Such schemes may carry the risk of mortgage default and minimal tax savings.

Given the complexity of these decisions and the potential financial impact, it is crucial to consult with tax professionals and advisors who specialize in property ownership through limited companies. Make informed choices tailored to your unique circumstances to maximize the benefits and minimize potential pitfalls.

At SeagraveFrench, we understand the complexities of property ownership and taxation. As professional landlord advisers, we specialize in helping you navigate the intricacies of property taxation and relief options. Our experienced team can assist you in optimizing your tax position, ensuring you make informed decisions tailored to your unique circumstances.

Given the complexity of these decisions and the potential financial impact, it is crucial to consult with tax professionals and advisors who specialize in property ownership through limited companies. Make informed choices tailored to your unique circumstances to maximize the benefits and minimize potential pitfalls.

If you are considering structuring your property portfolio within a limited company or seeking tax relief options, please reach out to our team for expert guidance and support. Your financial success is our priority.

If you are considering structuring your property portfolio within a limited company, please reach out to our team for expert guidance and support.

Your financial success is our priority. Please book a free consultation here.

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