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Why are Landlords becoming Limited Companies?

Hello everybody and welcome to episode 7 of Ask the Estate Agent Podcast. This week’s episode is answering the question, why are landlords becoming Limited Companies?

Now we’ve had a number of questions around this subject so I thought I would start off with this episode just giving an overview of why landlords are changing their approach and model and a few pointers to consider. BUT I am not an accountant, financial advisor or tax expert so if you have any specific questions you would like answering after this podcast then please send them in to me and we can look at incorporating these into our interviews with these advisors which we have planned for a future episode.

So lets get straight into this weeks topic – In the past couple of years there has been an significant increase in the number if private landlords running their letting business as an incorporated limited company.

One buy-to-let lender reported that in the first three quarters of 2017, seven in ten of it’s buy-to-let mortgage applications were made via limited companies rather than individuals.

So this is certainly a growing trend!

So why is this new structure so popular? What are the benefits or drawbacks for this approach?

For the most part, this shift has been due to an ongoing change in the tax regime for landlords, which is being implemented on a phased basis from April 2017 to April 2020 known as Section 24 of the Finance Bill 2015-16.

Prior to these new tax rules, landlords could effectively claim tax relief on their mortgage interest repayments at their prevailing tax – 20% for basic-rate taxpayers, 40% for higher-rate taxpayers and 45% for additional-rate taxpayers.

When the new regime is fully in place in 2020, landlords will only be able to claim tax relief for mortgage interest at the basic rate of 20%, potentially increasing tax liabilities for higher and additional-rate taxpayers by thousands of pounds.

So what’s the appeal of the limited company structure?

Well over the same period, corporation tax rates paid by limited companies are reducing from the current 19% to 17% by April 2020. Therefore, it is to the advantage of some landlords to change their letting business to a limited company structure from this perspective alone.

While any salary and dividends drawn from the company above the relevant individual allowance will be taxed at the prevailing rate – up to 45% for salary and 38.1% for dividends – any profits retained within the company structure are taxed at the lower corporation tax rate.

Now I must emphasise again that the appropriateness of a limited company buy-to-let to each individual is hard to ascertain, as there are many questions and circumstances to consider so please speak to your accountant or financial advisor in the first instance.

We as an estate agency have seen a significant rise in this kind of financing by landlords , which does show a growing appetite for this structure which seems set to continue in the short term.

Could there be an impact on tenants?

The tax changes have already seen rent increases for some tenants in some areas, but this has often depended on whether the individual landlord shifts to a limited company structure or continues trading as an individual.

For many professional landlords with large portfolios and relatively low mortgage exposure, there may be no need to increase rents.

Those who continue to let as individuals and especially those with larger mortgages relative to their properties value, could already be feeling the bite of the changing tax rules and may have no choice other than to pass that cost onto their tenants in the form of rent increases.

These changes are also occurring when landlords are faced with the tenant fee ban and selective licensing come in to force in many areas. So certainly the combined effect of all these changes could have a significant effect on rental prices.

Could this be changing the type of landlord, not the type of homeownership?

The changing tax rules , in addition to other policy changes such as the new stamp duty surcharge on the purchase of second or subsequent properties are likely to see some single-property landlords driven out of the market all together as the costs just continue to increase.

A recent survey of over 800 landlords by specialist lender Kent Reliance indicated that in the past year landlords with fewer than five properties had not grown their portfolios, while those with ten or more homes had on average added one property to their portfolio.

While the full force of the tax changes won’t hit until April 2020, there’s already an indication it may not be achieving exactly what the government had broadly set out for the buy-to-let market, which was to shift more properties from the hands of landlords and back into private ownership.

Instead it may contribute to a shift in the market that will see a reduction in the number of smaller, more amateur landlords, but present expanding opportunities for larger, professional landlords and property investors who are able to leverage the value of their portfolios while keeping mortgage liabilities to a relative minimum.


So in summary, if you’re a landlord and this is the first time you have heard of Section 24 and these changes then please do speak to your accountant for advice. I hope you’ve found this podcast useful and I really just wanted to highlight these tax changes for any of you listeners who were unaware of the implications.

So that leaves me to just say thank you very much for listening to this episode of the Podcast, don’t forget to contact us with any questions you want answering in future episodes.

Contact us via our social media channels or our website below and we’ll answer your questions in our future episodes.





So join us next time and if you enjoyed the show please don’t forget to subscribe and rate us on itunes, stitcher or wherever you are listening and until next time on Ask the Estate Agent it’s goodbye for now!

About the author, David Thomas

David Thomas is an Entrepreneur and passionate Estate Agent who loves helping others on their property journey.

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