Only four years ago, just under half of the portfolio of an average landlord who uses a limited company structure was incorporated.
This figure has risen significantly from 48% in the second quarter of 2020 to 81% in the second quarter of this year.
The findings by Paragon Bank suggested that this trend is likely to continue.
Of those landlords who are looking to buy in the next 12 months, 67% plan to do so through a limited company. This proportion has also grown significantly since the second quarter of 2020 when it stood at 45%.
By contrast, only 31% plan to buy a buy-to-let property in a personal name currently, down from 36% in the same period in 2020.
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Increased tax pressures push more to company structures
Landlords have faced increasing tax pressures in the past decade. In 2016, the withdrawal of tax relief available on mortgage interest and a 3% stamp duty surcharge on new purchases were introduced.
Buying a buy-to-let property via a company structure can provide some investors with a more favourable tax environment.
More experienced landlords with larger portfolios tend to use company structures.
The ownership mechanism is used by 37% of landlords who have four or more buy-to-let mortgage properties. It compares to 15% among those with between one and three buy-to-let homes.
A separate report by Paragon found that brokers agree, with 60% expecting their landlord clients to use a limited company structure in the next 12 months.
It is an increase of 11 percentage points since the previous data collection on the same issue in the first three months of this year.
Louisa Sedgwick, managing director for mortgages at Paragon Bank, said: “Landlords have increasingly used limited companies to mitigate the impact of tax changes phased in from 2016.
“This has accelerated in recent years as more landlords have looked for ways to run their business more efficiently amid a challenging economic environment.
“It’s really encouraging to see that brokers appear to be switched on to this because, despite the growth, 78% of landlords still hold their properties solely in individual names.
“While incorporation isn’t necessarily the best option in every situation, and landlords should seek advice from a professional financial or tax adviser, this highlights the opportunity for those that place this type of business.”
This article was originally published in YourMoney.com’s sister title Mortgage Solutions.
