The Rise of Limited Company Buy-to-Let: A New Trend in Landlord Investment

Should you purchase a Buy-to-Let through a limited company? Find out the results of new research


The Tax Faculty LLP

9/10/20236 min read

let by randals 01892700740 signage
let by randals 01892700740 signage

The realm of property investment is ever-changing, influenced by shifting market dynamics, government policies, and the broader economy. One significant trend coming to the forefront recently is the increase in landlords who are opting for a limited company structure when acquiring new rental properties. Here's a closer look into why and how this is becoming the new norm.

The Dominance of Limited Company Purchases

A recent study conducted on behalf of Paragon Bank, a buy-to-let specialist, revealed a compelling insight. An overwhelming 74% of landlords looking to invest in buy-to-let properties over the forthcoming year are considering doing so via a limited company structure. This figure, obtained from BVA’s quarterly tracker survey, signifies a steady rise from 62% in early 2023.

On the flip side, there's been a decline in those purchasing properties in their own names — plunging from 41% in late 2021 to a mere 17% by mid-2023.

Why is There a Drift Towards Limited Company Structure?

Several factors could be propelling this shift:

Tax Benefits: The primary attraction for most landlords is the tax efficiency linked with limited companies. Here, mortgage interest can be deducted from company revenue, and tax is applied at the corporate rate. For instance, if profits are below £50,000, the corporation tax rate stands at 19%, scaling up to 25% for higher profit margins.

Better Financing Options: Limited company structures have the edge in mortgage financing. Conventional lenders stipulate an interest coverage ratio of 145% for individual taxpayers in the higher bracket. In contrast, those for limited companies stand at 125%. Plus, landlords within the confines of a company can generally avail of heftier loan sums.

Historical Catalysts: The pivot towards limited company structures isn't purely a consequence of the recent landscape. Louisa Sedgwick from Paragon Bank pointed out that this transition began gaining momentum following the changes to mortgage interest relief implemented by the government in 2017. The recent surge in interest rates and accompanying mortgage prices have further accelerated the trend.

Does a Property Portfolio Size Dictate the Best Structure?

The research underscores another significant development: landlords with even a single property within a limited company structure are gradually expanding their portfolio. By mid-2023, the average portfolio size reached 16.9, a notable growth from 13.1 in late 2021. Moreover, the average number of properties nestled within a limited company setup also surged to 12.3 in Q2 2023, up from 7.8 in Q4 2021.

What can we take from this?

It's evident that the landscape for buy-to-let landlords is undergoing a profound transformation. As tax regulations, economic conditions, and lending practices evolve, landlords are rapidly adapting, and the limited company structure appears to be their preferred choice. It's essential for new and seasoned investors alike to stay updated and possibly consult with tax and property experts to make informed decisions in these changing times.

How can The Tax Faculty LLP help?

Navigating the intricate maze of property taxation and determining the optimal structure for holding buy-to-let assets can be daunting. That's where we step in. At The Tax Faculty LLP, our seasoned team of tax consultants offers deep insights and tailored solutions to align with your investment goals. With our in-depth understanding of tax regulations, economic trends, and property market dynamics, we're perfectly poised to guide you through every decision—ensuring that your investments are not only profitable but also tax-efficient.

Whether you're a first-time landlord or managing an extensive portfolio, partner with us to make the most of every property investment opportunity. Reach out today and let us pave your pathway to smarter, more strategic property investments.

Contact us below, or email for more information about how we can help you to become as tax efficient as possible now and in the future.

We can solve your tax problems, with ex-senior expert HMRC inspectors here to help to take the stress away from your tax worries.

We do everything for you, including filing returns and giving advice that may help to reduce the amount of tax that you owe.

Our guarantee to you - You will pay the lowest amount of tax possible, while complying with the law.

(Non-UK callers may need to call +44 207 101 3845 if you cannot connect to our 0800 number)

The Tax Experts you need, when you need them