Story for The Times: More landlords incorporating to make the numbers add up?

This is a common strategy and tax advice is essential. What people don't realise is that there is corporation tax (next year at 25%) to pay plus if you want to take the money out, dividend or income tax. Plus, if you sell a property, the company pays corporation tax on the gain and, if you extract that for yourself, more tax to pay. I see lots of richer families setting up 'Family Investment Companies' where the strategy is to buy and hold, rather than develop and sell on and there's some very good tax planning to be had there. Also popular is a property 'SPV' to buy a single property - just be aware that buying and selling costs will be higher as it is a share sale and not a property sale.

"Incorporation of rental properties into buy-to-let companies has been a common practice for many years, driven by the removal of mortgage interest relief for landlords. This method can be tax efficient if profits are used for re-investment but may not be the best option if profits are used for lifestyle expenses. Additionally, limited company landlord mortgages typically have more favourable affordability stress tests and competitive rates. As a broker, we see that most purchase mortgages for landlords are done through incorporation."

For anyone serious about building a btl portfolio, there's huge advantages to purchasing and owning property via a Special Purpose Vehicle (SPV) limited company. Lenders will stress test affordability at a lower Interest Cover Ratio of typically 120-125%, compared to the 145% ICR faced by higher-rate taxpayers who buy property in their own name.

SPV's also provide the ability to deduct mortgage interest payments and other costs of the property as a business expense, which can significantly reduce the landlord's tax bill.

It's never been more important to actually take a bit of advice from an accountant before buying a new rental property. For some landlords, incorrectly buying a property in personal names could well mean you end up having an investment that costs you money each month once you take into account the mortgage interest and the tax liability.

A Special Purpose Vehicle (SPV) is a non-trading company, existing exclusively for buying, selling and letting property. Landlords are now choosing to opt for using an SPV for property investment due to its tax advantages. Both income tax and capital gains tax (CGT) positions can be improved when within an SPV. It can also help succession planning for the family and all mortgage interest costs can be offset against income. Lenders offer a more generous rental cover calculation to SPV applicants, enabling them to borrow more for a given rental figure. This makes it easier for landlords to borrow more whilst keeping the SPV separate from any personal liability and property. You should discuss your circumstances with a tax advisor before setting up an SPV to ensure this is the correct choice given your circumstances.

We have lots of experience with personally owned BTLs transitioning into corporate structures (SPVs). The key thing in this process is that they seek and receive expert tax advice before they start the process, as getting it wrong can have profound implications. There is a huge amount of conflicting information with regard to whether this would trigger SDLT or CGT. Whilst there is a premium with the limited company interest rates, this downside is negated by the tax efficiencies of owning investment property in an SPV, not just in terms of interest relief, but being able to keep surplus income in the business if you have other forms of income (i.e employed or self-employed income) and only removing income when needed. There are many considerations when applying for a limited company and getting specialist mortgage advice is key.

Hi,

Not quite on point of the story but as a property developer I have set up a company to buy, develop and hold buy to let properties within an incorporated company format.

We are using bridging loans converted to development finance for construction followed by a final move into a buy to let mortgage upon completion.

The rates are a point or two higher but the process is more streamlined and following the direction of travel.

Thanks,

Joe

Over the last few years, incorporation has picked up extremely fast, with sections and other rules in place that tax landlords quite highly, LTD and SPV have been the way that some have turned to. This last quarter, BTL investors have turned to SPV's mainly due to the rental stress tests being a lot lower and therefore are able to afford the full loan.

We are certainly seeing landlords show more interest in incorporating their Buy to Let properties into limited companies. Lenders are increasingly pitching for business in the limited company buy-to-let space, giving landlords increasingly competitive options and more comfort that incorporating is the right long-term strategy. With the tax changes now firmly embedded and increasing pressure on landlords in other areas, limited company buy to lets look like they are here to stay.

The tax benefits can be beneficial for income tax, corporation tax, inheritance tax, even entrepreneurs relief. The actions of the Government are a badly thought out form of market control believing landlords would be all too happy to offload their portfolios and lose the asset and income stream. It has had the opposite effect where more property than ever is in company hands rather than private individual landlords. Rents are higher than ever, property prices are higher that ever, and landlords are more savvy than ever. Feel free to reach out and can show you a simple calculation.

It really does depend on the client, if it's an "accidental landlord", they're not looking at building an empire and are a basic rate tax-payer, there is definitely still appetite to own in personal names.

However, if they already have a portfolio and/or are a higher rate tax payer then there most defintely is legs in looking at buying through a limited company.

Separately I might have clients who would talk :-)