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Brokers - are landlords looking to incorporate?

Journalist: John Fitzsimons, Freelance

ended 07. November 2023

Morning brokers

This week research from Paragon suggested that around a third of landlords who hold property in their own name plan to incorporate in the next three years (https://www.mortgagesolutions.co.uk/news/2023/11/06/a-third-of-unincorporated-landlords-plan-limited-company-switch/).

We'd love to hear your experiences with clients in this position:

  • What sort of demand have you seen from your landlord clients around moving to a limited company structure?
  • How easy is the process?
  • What's the price differential like between regular BTL and ltd co BTL? Are there criteria differences to watch out for?
  • Which lenders stand out in the ltd co BTL space?
  • How do you go about ensuring your clients get the right tax advice before going ahead with incorporating?

Thank you!

7 responses from the Newspage community

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Editor
Stephen PerkinsVerified
Managing Director at Yellow Brick Mortgages
There are benefits to owning properties within a limited company or Special Purpose Vehicle (SPV) such as lower rates of stress-testing and being able to offset the mortgage interest against the rental income for tax purposes. This is leading to most new investor purchases being done this way. The mortgage rates were higher than personal Buy To Let mortgages but that margin is reducing as their popularity and market share increase. However, to take an already personally owned property into a limited company the company has to buy it from you with all the associated legal and enhanced stamp duty costs. For that reason most will just incorporate new properties to their portfolio and eventually replace the personally owned ones.
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Bob SinghVerified
Founder at Chess Mortgages
Ever since that fateful budget when George Osborne introduced S24 changes preventing the deduction of interest and removing the10% wear and tear as an allowable deduction landlords have veered towards buying new properties under a Ltd Co name.

However those with already large portfolios found themselves paying huge tax bills as a result and clever accountants devised many a scheme to rescue these landlords from the clutches of HMRC. Who doesn’t want to save tax after all ? English law provides for the fact that every person is entitled to rearrange their affairs to minimise taxation. That’s not how HMRC see it.

Demand has been huge and many have incorporated their portfolios, rightly or wrongly ,presumably under tax advice , and transferred ownership and financing to a Ltd Co, wholesale.

There has been much debate on social media and HMRC could have come out sooner if some mechanisms were sailing a bit too close to the wind. LLP’s,Substantial Incorporation structures etc.
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Darryl DhofferVerified
Founder at The Mortgage Geezer
Incorporating property portfolios is gaining traction due to tax benefits, liability protection, and succession planning advantages. Experienced professionals can streamline the incorporation process, but expert guidance is essential for tax and legal compliance.
Limited company BTLs may have higher costs due to corporation tax, accounting fees, and company formation costs, but potential tax savings can offset these expenses.
Key Considerations to look out for include, Portfolio size: Incorporation benefits larger portfolios. Tax planning: Landlords need to seek professional advice to assess their tax situation. Limited liability protection: Incorporation shields personal assets from property business liabilities.
Lenders for Ltd Co BTL Mortgages that stand out in this field are:
Paragon Bank: Offers BTL mortgages for portfolio expansion and refurbishment.
Foundation Homeloans: Provides specialized BTL mortgages
Quantum Mortgages - Specialist BTL, HMO, Multi-Unit
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Simon Gore0
Mortgage Broker at Henchurch Lane Financial Services
Since the conservative's eyewatering Section 24 was bought in, the additional stress to landlords and tenants alike over the recent years is evident. Landlords in this dilemma face some tough choices. Some landlords have exited the current market, while others have seen this as an opportunity that needs a different kind of structure, incorporation. Not all mortgage companies offer limited company products and not all solicitors can act for you with a limited company transaction, they must be registered on that mortgage company's legal panel. Is a limited company right for the landlord? The answer is yes if they are anywhere near the Higher rate tax bracket and/ or if they have a future plan to build a larger portfolio. It is important to realise that the limited company does incur additional considerations such as slightly higher mortgage rates and product fees, extra accounting costs as well as the extra paperwork you'll need to embrace as a proud owner of a limited company.
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Luke Thompson0
Director at PAB Wealth Management
The direction of travel in recent years has been for landlords to buy properties via a limited company rather than in their personal name because of the potential tax benefits.

However, I haven't personally had any landlords who have moved their whole portfolio from a personal name to a limited company due to potential cost and tax implications. What I have noticed though is that if they buy more property they will buy this via a limited company.

Interest rates generally start at around 0.5% above the rates being charged on a standard buy-to-let mortgage. But, the fees incurred tend to be much higher. Lenders will charge normally a % arrangement fee as well as a valuation fee and there will be increased legal costs.

The go to lenders for this type of lending tend to be Paragon, Precise, TMW and The Mortgage Lender all of them have pro's and cons and it would definitely be good to see more lenders enter this space.
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Rhys SchofieldVerified
Brand Director at Peak Mortgages and Protection
More and more we're seeing this after a decade of the government kicking landlords holding properties in personal names. If you can't offset your mortgage interest against the income received in rent anymore, in the world of higher rates you may have properties that actually cost you money each month. Fundamentally that is why so many people are shifting to owning through a ltd company as it could be the only way to make a portfolio profitable.
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Tahina AktherVerified
Barrister and Co-Founder at Wildcat Law
We are being approached by an increasing number of people looking at moving their properties into a limited company. Moving a buy to let portfolio into a limited company is not just about income tax though. It offers a wider range of benefits versus direct ownership, for example it allows greater flexibility regarding ownership through the ability to allocate, and sell, shares. This can be especially useful for unmarried couples or families and friends buying BTL's together.
It is essential to get legal, tax and financial advice when looking at the structuring. We have seen examples of where one of these areas was not addressed resulting in issues for the property owner.