Record Number of Landlords Incorporate Companies to Outsmart Tax Changes and Boost Profits

The number of landlords incorporating their property portfolios has soared to levels not seen since 2007 as property investors scramble to protect their profits from escalating tax rates and rising interest costs. According to Hamptons estate agency, 6493 new buy to let companies were created in September, contributing to a total of 51295 for the year to date. These figures mark the busiest first nine months on record since Hamptons began monitoring incorporations eighteen years ago.

Tax changes over recent years have been the driving force behind this surge. Previously, all landlords could deduct mortgage interest fully from rental income before calculating taxable profit. Since April 2017, this benefit has been phased out for individuals, culminating in a regime where landlords now pay income tax on full rental income before claiming back a twenty per cent tax credit on mortgage interest. This shift has left higher and additional rate taxpayers with steeper tax bills.

Landlords operating through company structures, however, continue to benefit from being able to deduct one hundred per cent of mortgage interest and other allowable expenses like the cost of replacement fixtures. With company profits subject to corporation tax at twenty five per cent or nineteen per cent for profits below fifty thousand pounds, this route often results in a lower tax bill compared to the forty and forty five per cent income tax rates for individual higher earners. Dividend payments bring their own tax bands, with all taxpayers enjoying a five hundred pound tax free allowance annually.

Incorporation has particular appeal for those with larger property portfolios. According to mortgage broker Howard Levy, the ability to offset full costs can translate to savings of hundreds of thousands of pounds over time. While upfront costs can be significant, including stamp duty and potentially capital gains tax when transferring properties into company ownership, these are often outweighed by the long term benefits for those committed to the property investment market.

Financing options for limited company landlords have broadened considerably. Moneyfacts reports that there are now one thousand seven hundred and thirty two and five year fixed mortgage rates available for company landlords, more than double the offer from last year. Lenders also impose less stringent affordability tests for companies, making it easier to obtain borrowings even though average interest rates remain slightly higher for company structures.

For landlords planning to remain invested for the long haul, incorporation is proving increasingly attractive despite the initial hurdles. The ongoing tax advantages, combined with a wider range of mortgage products, point to a future where professionalised property investment becomes the norm rather than the exception.