Buy-to-let investors opting for Property Limited Companies, ongoing trends

Chris Street

30th November 2017

By Louise Misiewicz

Article relevant to the tax year 2017/18

Are you a buy-to-let investor and wondering how to structure your property investments for the best return in 2018?

I was chatting to a new property investor client a few days ago as we were reviewing the advantages and disadvantages of utilising Limited Company status for buy-to-let purchases, and as a leading property tax specialist it’s critical to give our clients the most relevant and pertinent property tax advice, hints and tips.

Our team of property tax experts are on hand to best advise our clients on how to structure their property investments, and part of this means keeping a close eye on industry trends and property sector changes.

Section 24 – Mortgage interest relief on property investors

One of the key reasons that property investors are now using limited companies is because of section 24 and mortgage interest relief cap. Once upon a time property investors and landlords were able to offset 100% of the mortgage interest costs against their property income. Since the budget changes as highlighted in our article shows that high rate tax payers will only be allowed 20% tax relief on the mortgage interest cost. This means that high rate tax paying property investors and landlords will only get half  the tax relief they are used to. See our article on Section 24 and mortgage interest relief cap for details

We have provided property investors and landlords with a Section 24 downloadable spreadsheet to see how the budget changes affect their tax position.


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Recent statistics of property investors using limited company structures

Recent statistics have highlighted that in the third quarter nearly 80% of buy-to-let purchases have been borrowed by a Property Limited Company, representing a 6% increase from the previous financial quarter.

I also discussed with my property investor client that the increase in the use of Limited Companies, buy-to-let landlords in the UK for their borrowing needs has been reflected in the recent statistics held by Companies House.

There was, in fact a high rise in registrations for Special Purpose Vehicle Limited Companies with property-related SIC codes in 2016, following the Summer 2015 Budget when changes to income tax relief on finance costs for landlords borrowing personally rather than through a Limited Company status.

There was, as I advised my client, a spike in SPV registrations last year, but the numbers have realistically been increasing for longer than this. Numbers have been on the up since 2008, although the financial dip during that time had a significant and negative impact on the property sector in the UK for investors.

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By now, you would have noticed that the number of tax changes means that you need to plan for the future to ensure that you keep more of what you earn. 

Property investors: How does Section 24 (mortgage interest relief) affect you? How are your properties going to perform once Section 24 (mortgage interest relief) comes into full effect? 

Doctors/Dentists: Have you incorporated your private practice work into a limited company? Have you structured it to ensure that you and your family takes advantage of the tax breaks? 

Stephen Covey said that “people climb to the top of the ladder, only to find out that it is set against the wrong wall”.

Many people go about their business and at the end of the year they feel that they have not moved forwards.

The finance, tax and wealth sessions have been designed to review your financial and tax plans for the next five years by reviewing your income streams, lifestyle costs, investment returns, legacy and estate planning needs.

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As I advised my property investor client, the 2015 Summer Budget has noticeably sped things up with 2015 and 2016 showing the fastest growth in registrations. Ongoing figures indicate that SPV registrations at Companies House could increase this year by 35% in comparison over the same period for 2016.

I’d suggest that buy-to-let property investors are turning to Limited Company status and SPVs because of the benefits they bring in the form of tax-efficiencies and lower affordability testing in the first instance.

As I advised my property investor client, switching to a corporate structure isn’t without risk, and it’s recommended to take professional tax and finance advice before deciding how to proceed with investing.

I’ve written numerous articles on tax-efficient buy-to-let investing, and utilising Limited Company status, including the following which will make for useful background reading:

Allowable costs since the Budget announcement

What structure to use for your property business

Limited Company: the best vehicle for tax & wealth planning

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