Landlord limited company registrations soar

According to This is Money, 2024 has seen a record number of landlord limited company registrations.

Between January and September, people set up 46,449 landlord limited companies. This is more than the number registered during the whole of 2023. There are now over 382,000 companies of this kind in England and Wales, holding nearly 667,000 properties between them.

Given this surge in the number of landlord company registrations, it’s worth taking a fresh look at the pros and cons of holding property in this way.

Landlord limited company registration benefits

The main reason people opt for a landlord limited company is for tax reasons.

If you hold properties in your own name, you have to pay income tax on your profits. Currently, if you have an overall income (including other sources) of up to £12,570, you don’t pay tax (this amount is your personal tax-free allowance). If you earn between £12,571 and £50,270, you pay the basic rate of income tax at 20%. Earning between £50,271 and £125,140 means you pay the higher rate of 40% tax above the former amount. When you earn over £125,140 you pay the additional rate of 45% over that amount (and you lose your personal tax-free allowance).

Conversely, if you hold properties via a landlord limited company, you pay corporation tax on the profits. This is set at 19% for profits under £50,000. It is then tapered, reaching a maximum of 25% when your profits exceed £250,000.

On the face of it, holding properties via a landlord limited company seems a smart move. But before you rush out and transfer your property portfolio into a limited company, you need to realise that there can be drawbacks.

Problems with landlord limited companies

Setting up a landlord limited company isn’t for everyone. This is particularly true for landlords who currently hold properties as an individual.

First of all, people in this situation need to ‘sell’ the property to the new company. When you do this, you have to pay higher rate stamp duty on properties worth more than £250,000. Then you need to pay capital gains tax on any profit you make on the sale that’s over your £3,000 CGT tax-free allowance. You may also face finance costs of taking out a new mortgage in the company’s name, plus early repayment charges of your existing mortgage.

In addition, although you will be paying corporation tax, money you take out of your landlord limited company will be liable for income tax (if taken as a salary) or dividend tax.

In short, it’s sensible to get independent advice before you switch your property portfolio from individual ownership to a landlord limited company.

When limited companies are a good idea

If you do set up a landlord limited company, there can be advantages – especially if you create the company first and use it to buy properties.

Firstly, you can fully offset your mortgage interest against your rental income (something individuals can no longer do). However, there’s no guarantee this perk will continue indefinitely.

Secondly, if you buy a property via a company, you can build up profit and use it to buy further properties.

As This is Money puts it succinctly: “it means that whilst individual landlords are effectively taxed on turnover, company landlords are taxed purely on profit.”

I’m a landlord. What do I do next?

Whether you are currently a landlord, or you’re thinking of branching out into the buy-to-let market, it’s vital you get good advice. As the accountants for landlords, we can steer you through the pros and cons of holding your portfolio as an individual or via a limited company. If you’d like some help making your decision, make an appointment to talk to one of our buy-to-let specialists today.