A third of unincorporated landlords plan limited company switch – Mortgage Solutions

While many landlords are planning to incorporate their portfolio in the next three years, barriers persist.

A report from Paragon Bank said that around a quarter of landlords own all their rental properties in a limited company structure, 31 per cent hold properties in a mixture of personal name and limited company structures and 34 per cent hold all their properties in personal name.

But a third of the latter group plan to switch to a limited company structure in the next three years.

The buy-to-let lender noted there was often a change in property ownership structure from when landlords own their first property, with 71 per cent initially holding property in their personal name.

Paragon said that this suggests that landlords pivot towards limited company once they’ve built up a portfolios.

The report continued that 46 per cent of those who own property exclusively within a limited company have more than 11 years’ experience, and 33 per cent only have up to five years’ experience. On the flip side, 85 per cent of landlords who own property in personal name have over 11 years’ experience.

Portfolio sizes also tend to be smaller for those using a limited company portfolio with 57 per cent of these landlords owning four or more properties, compared to 68 per cent for those unincorporated landlords and 87 per cent for mixed portfolios.

A quarter of limited company landlords plan to increase the number of properties in their portfolio in the next year compared to four per cent who are unincorporated.

Barriers to switching

According to Paragon, which surveyed around 1,000 landlords, 37 per cent said it was unlikely that they would transfer their properties into a limited company structure.

More than half cited tax as the main barrier to incorporation, with 36 per cent pointing to a lack of information on how to incorporate and 26 per cent said there were fewer mortgage options available.

Paragon Bank’s managing director of mortgages, Richard Rowntree (pictured), said: “There has been a significant increase in the number of landlords who hold property in a limited company structure over the past six years as the government started to phase out Mortgage Interest Relief from 2017.

“Many landlords who own property exclusively within a limited company structure have done so from the off and that is reflected in the demographic of this group, which is typically younger than those with personal name or mixed portfolios.”

He added: “There is a clear desire for a large proportion of landlords with property in personal names to incorporate, but barriers persist, such as having to pay Stamp Duty and Capital Gains Tax.

“We would advise landlords in this position to speak to a tax specialist who can offer guidance on the most suitable route available.”

Anna is a reporter for Mortgage Solutions and assistant editor for Specialist Lending Solutions, both B2B sister titles of YourMoney.com. She has worked as a journalist for over four years, initially in the specialty insurance sector before moving onto mortgages.