Landlords are changing

If you are considering creating a limited company to run your buy-to-let properties, you are not alone. It’s becoming a popular option for landlords, but there are also some elements which may need consideration first.

Investing in property through a limited company has become a popular choice for many landlords. According to research by estate agency Hamptons a total of 41,700 new limited companies were set up for buy-to-let businesses, an increase of 23% on 2019.

The growth of limited company buy-to-lets looks set to continue, but is it right for all landlords? Let’s look at some of the factors you need to weigh up when considering such a decision.

Landlords operating within a limited company are able to claim 100% limited company mortgage interest relief and benefit from a lower rate of Corporation Tax, rather than Income Tax, on profits.

This is seen as a major benefit when compared to private landlords, where mortgage interest relief is restricted to the basic rate of income tax and all earnings from rental income are subject to taxation.

However, as mortgage interest rates tend to be higher, the benefits of setting up a limited company for buy-to-let property generally favours higher income taxpayers or multiple property landlords. Always speak to a tax adviser about your circumstances.

Rising interest rates

Low interest rates have kept finance costs down over recent years. However, with the Bank of England having recently increased the base rate for the first time in three years we expect the market to move towards a rising interest rate environment.

This will have a financial impact on many landlords because their repayments are likely to increase when their current fixed rate comes to an end. Factoring this into your projections will help smooth any potential financial fluctuations in the future.

Limited liability

As a limited company landlord, your personal finances are largely protected. If something goes wrong your liability is limited to the value of your financial investment in the business.

You can further mitigate this risk by taking out professional indemnity and personal liability insurance.