Property investors will know that 2021/22 was the first year where the full impact of tax changes will be felt and since they began to take place in 2017, there has been a surge in the number of properties purchased with a limited company.
Interesting research from estate agency Hamptons has recently shown that more buy-to-let companies were set up during 2021 than in any previous year and here’s an overview of their key findings:
- 47,400 new buy-to-let companies were incorporated in the UK during 2021
- There has been a 14% rise in the number of buy-to-let limited companies since 2020
- Half of all new buy-to-let mortgages during 2021 were taken out by landlords through a company
- Buy-to-let companies account for 29% of all active buy-to-let mortgages
Going back to the point about buy-to-let limited companies having surged, if we compare 2021 to 2020 alone, we see that the number increased from 200,000 in mid-2020 to 269,300 in 2021. That’s a whopping 35% increase in just 12 months!
The benefit to investors is that purchasing through a limited company means they can offset 100% of costs against income to reduce their overall tax liability. This compares to owning property as an individual where costs cannot be offset and a tax credit of 20% is provided instead. For higher rate taxpayers, this significantly dents their profits!
We regularly work with investors who wish to purchase through a limited company and whilst interest rates are generally slightly higher than purchasing as an individual there are several benefits, such as:
- Being more tax-efficient
- Ease of being able to pass on a company to others rather than passing on a property owned by an individual
- Greater protection due to a ‘limited liability’ meaning only the money you have put in and any personal guarantees being at risk
There are, however, additional administrative costs associated with operating a limited company, so it may not be suitable for everyone, and we certainly recommend getting good advice.
If you are an investor looking to purchase or remortgage through a limited company, then remember that our team is always on hand to help!
Sources
https://www.tmwdirect.co.uk/help-and-guides/limited-company-facts