Is now the time to become a limited company landlord?

Being a landlord is about running a profitable investment, but for some, it is becoming harder to protect margins and generate a meaningful income. Now is a good time to examine your landlord status  – is it best to be a private operator or a limited company?

Before we delve into the recent trend for limited company landlord status, let’s set the record straight about property investment. Of 700 landlords questioned by BVA BDRC for Paragon Bank, 47% of property investors who owned between 1 and 5 rental homes planned to buy a further buy-to-let property or properties over the next 12 months, confident that rental demand will continue to grow in the UK.

With investors remaining active, thoughts turn to gaining a financial edge in a sector that seeks to strategically tax the private landlord. The same Paragon Bank research found the number of buy-to-let landlords planning to purchase properties through a limited company structure has increased every year for the past three years.

It appears the desire is specifically growing in 2022. Of those questioned by Paragon, 50% of landlords in the first quarter of the year intended to buy as a limited company. This figure had risen to 62% in the second quarter. Portfolio landlords are most likely to follow the limited company path, with 78% of landlords who own six or more properties planning to use this set up for their next purchases.

So why are an increasing number of landlords turning their back on private landlord status? Many are using limited companies as a way of reducing costs and improving profit margins. It isn’t for everyone, however, and landlords need to undertake thorough research specific to their individual circumstances before any switch is made.

The biggest advantage to operating as a limited company lies in the rate at which profits are taxed. While private landlords pay income tax on their rental profits, limited company landlords pay corporation tax. Currently, the basic rate of income tax is 20%, the higher rate is 40% and the additional rate is 45%. Conversely, corporation tax currently stands at 19%.

It’s worth remembering that corporation tax rates can go up as well as down and any increase may wipe out a tax advantage. In fact, there are scheduled hikes to corporation tax planned for 1st April 2023. Limited company landlords earning more than £50,000 from their property investments will be taxed anywhere between 20% and 25%, although a change in Conservative leadership and a possible snap General Election may delay or alter this planned raise.

Another advantage of operating as a limited company makes itself known when it comes to completing tax returns. New property tax rules phased in between 2017 and 2020 saw private landlords lose the ability to deduct mortgage interest payments from their income. This left many landlords with a more expensive tax bill, and it has also pushed some landlords into a higher tax bracket. Landlords operating as a limited company, however, remain able to offset the full interest amount against their profits, as the interest is deemed a deductible expense. 

There are other advantages to becoming a limited company landlord. Many prefer the simpler taxation applied when property investment assets are sold – a limited company landlord doesn’t have to pay capital gains tax but they will have to pay corporation tax, which is felt by many to be a simpler payment.

There’s also less personal exposure when buy-to-lets are held within a limited company, as all personal assets are separate. In addition, there are a number of ways to pay yourself an income when operating as a limited company – many of which allow for a more tax-efficient existence.

Before you join the increasing number of limited company landlords, familiarise yourself with your own circumstances. If you are a basic rate taxpayer, only own one buy-to-let property or don’t have time for an increased level of business administration, you may benefit from staying as a private landlord.

Becoming a limited company property investor should only be done in tandem with independent taxation, financial and property advice. Contact us if you would like to speak with an impartial expert.

4 things a new-look Conservative party might mean for property

The Prime Minister’s resignation, a high-profile sacking and a raft of new appointments have given the ruling Conservative party a brand new look.

New faces in the Government’s housing departments come at a critical time for the property industry, with a number of new rules, regulations and laws waiting to come into force. The sacking of Michael Gove was the start of a completely different MP line-up, with the outgoing Secretary of State for the Department for Levelling Up, Housing and Communities (DLUHC) replaced by Greg Clark.

In addition, Marcus Jones has been installed as the new Housing Minister after the resignation of Stuart Andrew, while Lord Greenhalgh, the representative responsible for overseeing the DLUHC’s business in the House of Lords, also handed in his notice.

While the ministerial changes are part of a wider bid to freshen up the Conservative party ahead of a possible snap general election, there could be imminent changes to the way we buy, sell, rent and invest in property as a result. Here are four watchpoints for the property market:-

  1. The Renters’ Reform Bill may be delayed: the property industry is rumbling with rumours of a delay to the much-hyped Renters’ Reform Bill. With Gove, the initiative’s creator, now out of the picture and Parliament’s summer recess pending, any new laws and regulations may be reconsidered or implemented at a later date. We’ll monitor the situation and relay any updates as soon as they happen.
  2. Cladding is Greg Clark’s priority: in his first media address since his appointment as the DLUHC head, Clark confirmed expediting a solution to the UK’s cladding crisis was the top of his agenda. He has given major housebuilders a four-week deadline to sign up to remediation work contracts, giving hope to property owners whose cladding has been deemed unsafe. Where other new property laws sit on his agenda remains to be seen.
  3. Uncertainty over part II of leasehold reforms: while part one of the Government’s leasehold reforms are in place – with newly-created leases now free of ground rent – doubt has been cast over how quickly part two will come into effect. While Lord Greenhalgh reconfirmed that reforms to make it cheaper and easier for existing leases to be extended to 990 years with zero ground rent would happen, his exit puts a question mark on how quickly phase two of the reforms will be introduced.
  4. The number of new homes built should rise: there is good news for fans of new build homes – and for all home movers who’d like to see a more fluid property market with more stock. Clark has declared a resetting of the Government’s relationship with housebuilders so they are more free to build more properties. Encouragingly, conversations with the House Builders’ Federation are already underway.

For now, the property market continues as normal. Please contact us if you are ready to sell or let your property.

Add value with these garden additions

The topic of adding value to a property is something extensively covered in the press but not every suggestion you read about is practical, affordable or enjoyable. What if, however, there were a number of ways to add value with items you may already be thinking about buying or installing this summer?

Look no further than your garden. It won’t have escaped your notice that outside space on its own is one of the best ‘added value’ aspects of property, with a well-kept garden widely believed to add between 10% and 20% to a home’s value.

A recent piece of research by Roofing Megastore set out to identify the garden facets that added the most value to a property. While some of the most substantial and permanent garden improvements see the biggest returns (adding a conservatory, a home office garden room, a gym/studio or an orangery will result in the most value, all increasing a property’s price by at least £6,500), there are a number of more modest and on-trend additions with surprising returns.

If you’re determined to make the most of your garden this summer before going on the market, you may like to consider this year’s al fresco must-have – the outdoor kitchen. Having a dedicated place to cook outside can add £6,385 to your home’s value and if you look up ‘outdoor kitchen hacks’ online, you’ll find some budget-friendly tips, tricks and DIY solutions.

Also bringing joy this summer and adding value at the same time is the hot tub (+£5,752); a garden bar (+£5,624); a built-in pizza oven (+£5,135) and a built-in outdoor BBQ (+£5,135). The research also found a new paved patio, a new decking area, a children’s treehouse, a greenhouse, and mature plants, trees and flowers all added more than £5,000 in value.

On the last point, even your choice of plants can create an uplift to your property’s price. GetAgent teamed up with gardener Craig Wilson from Gardener’s Dream to identify what plants add the most pounds. If you’re potting up tubs or sprucing up borders, Wilson says hydrangeas, peonies and eucalyptus will add value.

When it comes to devaluing property, there’s one plant that will dent the price and that’s Japanese Knotweed. It’s an invasive species not sold in garden centres but it can spread from neighbouring gardens, sidings and embankments.

If you think you have Japanese Knotweed, you’ll need to call in a registered expert to confirm its presence and treat the plant before you go on the market. If you don’t and Japanese Knotweed is identified in your survey report, a buyer may find it problematic to get a mortgage on your property.

Gardens really do hold great appeal, so sellers should pay attention to lawns, beds, borders and furniture. If you’d like advice about how to present your garden ahead of a sale, please get in touch.