7 in 10 Landlords Buy Lets via Companies

According to new research, seven out of ten landlords planning to buy a home to rent will opt to set their businesses up as limited companies to reduce the tax they pay.

Buy-to-let specialist lender Paragon Bank surveyed 789 landlords in Q4 2024 about the tax status of their purchases and found that 69 percent intended to buy through a limited company.

One in four planned to do so in their personal name, and the remaining landlords were unsure how to proceed.

However, although the private rental sector favours trading as a company, 78 per cent of landlords still own property in their names.

Only 9 percent owned all their properties through a limited company, rising to 28 percent for landlords with portfolios of four or more properties.

Corporate switch blamed on tax changes

However, one in eight have portfolios with a mix of personal and limited company ownership, with an average of 74 percent of properties owned by a company.

Tax benefits and financial planning are the main reasons for trading as a company. Some 45 percent of landlords with company properties blamed the impact on personal income tax as a key reason for the switch to corporate ownership, while 42 percent were concerned about the loss of mortgage interest relief if they traded as individuals.

Other financial worries included corporation tax rates and inheritance tax planning. Those trading as individuals cited the costs of transferring assets to a company as the main barrier in changing to a corporate status (52 per cent), followed by uncertainty over capital gains tax (32 per cent) and the perceived administrative burden of running a limited company (31 per cent).

Jason Wilde, head of mortgage sales at Paragon Bank, said: "The trend towards limited company structures has accelerated in more recent years, mainly due to changes to mortgage interest relief, but also landlords considering inheritance tax planning.

"Over 80 per cent of our customers are now purchasing within a limited company structure.

"Limited companies also benefit from an interest cover ratio of typically 125%, versus 145% for higher-rate taxpayers buying in a personal name, so it broadens the availability of buy-to-let mortgage finance."

Buy-to-let hotspots

Meanwhile, a separate analysis of the bank's lending data has revealed the places that attracted the most buy-to-let investment last year, with postcodes serving students and large employment markets topping the list.

CF24 in Cardiff was the most favoured postcode for buy-to-let landlords.

The postcode covers the Cathays and Roath neighbourhoods, which are popular with students studying at one of the city's three universities.

Landlords in the area can expect average rental yields of 8.7 per cent.

B29 in Birmingham was the second most popular location. The postcode covers the affluent suburbs of Bourneville, Edgbaston, and Selly Oak near the prestigious University of Birmingham and the Queen Elizabeth Hospital.

This neighbourhood typically generates yields of 7.5 per cent.

PL4 in Plymouth, Devon, was next on the buy-to-let hotspot list.