Landlords looking to make ends meet amid a tight tax structure and rising interest rates are increasingly turning towards company structures, and many are growing their portfolios. 

According to research from buy-to-let lender Paragon Bank, three-quarters of landlords who intend to purchase a new rental property in the next year will do this under a limited company structure, as opposed to paying income tax as a private landlord.

This has been a growing trend since late 2021, and was up markedly from the 62 per cent of landlords who said the same in the early parts of this year.

Buying as a limited company offers a number of tax benefits. It allows landlords to deduct mortgage interest from company income and pay tax at corporation tax rates, rather than an individual landlord’s personal income tax rate.

The structure can also offer more favourable mortgage financing options. Paragon said most lenders set interest coverage ratios at 145 per cent for higher-rate taxpayers, whereas limited company applications require a ratio of 125 per cent. They can often get higher loan amounts too.

This seems to have struck a chord with landlords.

Louisa Sedgwick, Paragon Bank’s commercial director of mortgages, said: “Holding rental property within a limited company structure has been growing in popularity since the mortgage interest relief changes introduced by the government in 2017, but it has certainly accelerated in the past year.

“As a lender that specialises in portfolio landlords, we have always attracted a higher proportion of limited company lending, but that has certainly increased, particularly as interest rates, and subsequently mortgage pricing, have risen.”