Comment: More private landlords searching for ‘company’

The number of private landlords is decreasing at an increasingly fast rate – by which I mean there is a dramatic trend whereby new or existing landlords, rather than operate privately, are now doing so through a private company, principally as a result of the fairly draconian diminution in tax breaks introduced several years ago by the government of David Cameron (remember him?).
Despite Brexit uncertainty, property lettings business is holding up nicely, says Alexander. Picture: contributed.Despite Brexit uncertainty, property lettings business is holding up nicely, says Alexander. Picture: contributed.
Despite Brexit uncertainty, property lettings business is holding up nicely, says Alexander. Picture: contributed.

According to recent research by the specialist lender Precise Mortgages, more than half of landlords plan to use limited companies to buy properties in the year ahead. Fifty-five per cent of landlords surveyed say they intend to use limited companies for purchases, more than double the 24 per cent of property-owners who intend to buy as an individual.

As if to highlight the rapid growth in the trend, Precise Mortgages says that in fourth quarter of 2018 around 44 per cent of landlords planned to use limited companies for purchases but by the first quarter of 2019 the number intending to do so had risen to 53 per cent. Limited companies are said to be most popular among landlords with a portfolio of 11 or more properties, with 71 per cent of them going down this route for purchases. Even a slim majority of those with portfolios of ten or fewer intend doing the same. Nearly seven in ten landlords say they will fund their next portfolio purchase with a traditional buy-to-let mortgage compared with just over six in ten in the fourth quarter of 2018.

Hide Ad
Hide Ad

Precise Mortgages MD Alan Cleary said – not surprisingly, perhaps – that the trend was “further evidence of how the buy-to-let market is changing and demonstrates how brokers and their clients need expert specialist support when buying as a limited company or considering switching”.

These figures do not come as much of a surprise. The “Cameron crackdown” (although the real culprit was the former chancellor, George Osborne), began phasing out tax relief on buy-to-let mortgages and severely restricted the relief landlords could previously claim for wear and tear. As a result, some landlords have quit the sector altogether although mainly those more heavily-geared and whose margins were fairly slim. Also other landlords – especially those in the older age group – who had done well out of the market felt the changes marked a good time to sell up and realise their capital gain.

Limited company status is more attractive to landlords as the phased reduction in mortgage interest tax relief does not affect them and they can offset this against profits, which are subject to corporation tax of 19 per cent instead of income tax rates. Interest coverage ratios on limited company applications are also lower than for most individual landlord applications. It should, however, be stressed that going down the company route involves additional financial outlay and there is no guarantee that the breaks currently enjoyed by property-letting “companies” will not be changed by government in the future. Therefore, any private landlord thinking of company status would be advised to take proper professional advice.

So why are landlords trying to reduce their tax bills through company status rather than quitting the sector in any great numbers?

The answer seems to be that despite Brexit uncertainty and everything else, property lettings business is holding up nicely. Hamptons International said it took an average of 20 days to let a property in Britain between January and July this year – three days quicker than the same period in 2018 and the quickest time on record. Scotland mirrored the British average – ie an average of 20 days to let, three days quicker than last year and five quicker than 2014. Scotland also produced the highest rental growth for new leases at 5.2 per cent.

Not surprisingly, one London borough – Hillingdon – recorded the best performance with just 9.5 days for a property to be let. But flying the flag for Scotland in this respect was Dundee, were it took just over 15 days to let – substantially better than the national average.

David Alexander is MD of DJ Alexander