According to the latest figures, there were 41,700 new companies formed in 2020, with buy-to-let incorporations being the second most popular type of company formed.

With the stamp duty threshold for residential purchases being increased from £125,000 to £500,000 through the stamp duty holiday, many landlords could now benefit from incorporating their property portfolio into a limited company to take advantage of the tax incentives available.

Tax changes for buy-to-let landlords were introduced in 2016, with the number of incorporations since then rising by 128 per cent.

A three per cent stamp duty surcharge is placed on investors and those buying second homes, but landlords who hold properties in a limited company can offset 100 per cent of their mortgage interest against profits. This is significantly higher than the 20 per cent that higher rate taxpayers holding property in their own name can offset.

There are considerations to be made, as owning buy-to-let properties via a limited company often means that mortgage interest rates are higher, although the gap is closing every year, while this extra cost is likely to be offset by the savings made.

We believe that setting up a company to hold buy-to-let properties tends to benefit higher-rate taxpayers more, though this is something that should be considered carefully. There are also now more mortgage lenders in the market, meaning that there is now more competition in the buy-to-let mortgage sector, resulting in more competitive rates and a more attractive proposition for landlords.

Rental growth has also risen over the past few months, with rates rising by 4.1 per cent in December, the highest rate seen in more than four years.

Holding properties in a company can also assist with inheritance tax planning and ensure the properties are passed to beneficiaries in a more tax-efficient manner.

For help and advice on matters relating to buy-to-let properties and property incorporation, contact our expert team at Sunny Accountants today.

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