Adrian Moloney - Group Intermediary Director
A lot of people dream about it – buying their own place in their mid-20s and taking their first solo step on the property ladder– only to meet ‘the one’ a year or two later and moving in with them instead. But after working so hard for their little house or flat, they don’t want it to seem like a waste, so what to do? Instead, many people transfer it to a buy to let mortgage and rent it out so they can keep their asset and make a little bit of extra money. Or it may be someone who inherits a property when they already have their own home, so also choose to rent it out to gain a little extra income.
However, over the past decade we’ve seen this type of landlord diminish more and more, opting to leave the buy to let market and selling up. Since 2010, landlords that only own one property have dropped by 35%, representing only 20% of accommodation in the private sector. So, why are these ‘part-time’ or ‘amateur landlords’ deciding to lose their rental income? Well, many non-professional landlords are struggling to keep up with the higher standard of regulations they must follow and higher interest rates, meaning their rented property might simply be too much of a headache for them.
This then opens up the market for more ‘portfolio landlords’ to hold additional space in the private rented sector. This professionalisation of the industry simply means that more experienced landlords now dominate the space, resulting in better lives for their tenants and landlords who ‘aren’t properly set up’ are driven out of the sector which then improves landlords’ reputations. This takeover of the market also means that more landlords are setting up limited companies to reap the rewards of a range of tax benefits, flexibilities and freedoms that an individual landlord does not receive. One of these benefits being the ability to offset their mortgage interest before they are taxed, which can make the difference between profit and loss that ‘part-time landlords’ cannot access.
Although individual property landlords are able to register as a limited company, research conducted by Hamptons suggests that ‘the average company with outstanding mortgages now holds 3.3 mortgaged properties’. Although many landlords are opting to register as a limited company, it is not an easy task – it takes time, money and a good tax adviser. It’s certainly not something that they would be able to complete on their own or even with their existing accountant. So, even though becoming a limited company does hold many advantages, the majority of landlords have not yet incorporated – but it’s suggested that it is becoming more prominent as a record 50,445 landlords registered limited companies in 2022.
However, most ‘part-time landlords’ and even some portfolio landlords may not choose to register as a limited company due to the costs and concessions related to the process of transferring property into one. Plus, they would need to take the tax calculations into account as it works out differently depending on an individual’s tax positions, meaning it might not be the most suitable route for everyone.
As a mortgage broker, we know that you can’t give advice to your clients yourself. However, so you get ahead of the curve, it’s best to anticipate this change in the sector so you’ll be best prepared to support your clients if they do enquire about a company buy to let. Knowing the right contacts (such as a qualified tax adviser) before you are asked about it will help speed up the process and instil trust between you and your clients.
Monday - Friday: 9am - 5pm
Wednesday: 9:30am to 5pm
excluding bank holidays
2 Charter Court, PO Box 6037,
Wolverhampton, WV1 9QW.
0800 116 4385