Big Trend In Landlords Becoming ‘Privatised’
According to a specialist lender, landlords switching to ‘become’ private limited companies when purchasing BTL properties is now twice as popular as buying as an individual.
The lender’s latest data shows that 55% of landlords are intending to apply using a limited company to buy properties in the next twelve months, whereas only 24% of landlords plan to purchase a BTL property as an individual.
The limited company lending is on a continuing upsurge as purchases increased from 44% in Q4 2018 and the 53% in Q1 2019.
Many landlords -71%- who have more than 11 properties in their portfolio prefer to operate under a limited company when buying more BTL properties.
51% of landlords with 10 or less properties are planning to become ‘privatised’ whereas only 27% prefer to stay as an individual.
Landlords opting for the limited company route is mainly down to the phased reduction in mortgage interest tax relief. As a company the reduction will not affect them as it allows them to offset the higher rate of mortgage interest tax relief against profits, which in turn are subject to the 19% Corporation Tax, rather than standard income tax rates.
The other notable advantage for a limited company application is that interest coverage ratios are mostly lower than those for individual landlords.
Alan Cleary, managing director of the specialist lender, said: “Despite the challenges in the market, professional landlords have still managed to grow their portfolios over the past year with the use of limited companies, and it will continue to be the most preferred purchase route, particularly for those with larger portfolios.
“The increased use of limited company status is further evidence of how the buy-to-let market is changing and demonstrates how brokers and their clients need expert specialist support when buying as a limited company or considering switching.”