According to GetGround’s latest research, three in four landlords now use limited companies for at least one of their property investments. This shows that – far from being a niche solution for only a small section of landlords – limited company investing is increasingly becoming the norm.
Half (49%) of these landlords first invested via a limited company within the last 12 months, while two in five (42%) invested for the first time in the past one to three years.
Landlords have been using limited companies in growing numbers after the government removed mortgage income tax relief for those investing in their own name, replacing it with a slightly less generous tax credit.
It’s not just the government’s 2017 tax overhaul that’s driving investors to limited companies. Our survey picked out two further incentives for landlords turning towards limited companies for their property investments:
57% of survey respondents said the limited personal liability afforded by a limited company is a key benefit. By keeping one property in its own company, this effectively ringfences it from other properties in a portfolio. This means the majority of investors’ portfolios remain protected in case of a mortgage default – particularly handy at the moment, where a cost of living crisis in the UK could mean more missed rental payments.
With mortgage rates sitting quite high at the moment, many investors have turned to investing in groups as a way to access the UK’s lucrative property market, without having to shoulder the full costs. And 57% of our survey respondents said that a limited company makes this easier.
That’s because, with a limited company structure, it’s easy to see who owns what stake in the investment (through the allocation of shares). Also, with documents like a Shareholder Agreement, each investor can be sure their investment is totally protected in case of a dispute.
Our survey showed that 93% of investors who use limited companies manage less than half of their portfolio with them.
On the face of it, that could suggest that investors still aren’t totally convinced about the benefits. But, when you consider the tax inefficiencies of shifting a property from your personal name to a limited company, there are many incentives for keeping previous investments where they are. What we are seeing, though, is more and more new investments made through a limited company – where investors can realise the benefits from day one.
In fact, the number of property company incorporations doubled between 2017 and 2021. We expect full-year data for 2022 to show another big jump.
Moubin Faizullah Khan, CEO of GetGround, said that “industry data is creating an exciting picture of limited company adoption across the landlord community, but until now it’s not been entirely clear how many individual landlords are using limited companies and how extensively used they are among landlords’ portfolios.
“Our final poll for 2022 shows that awareness and adoption of incorporations is fast growing, and importantly, for the right reasons.
“Whether it’s affordability, protection against risk, financial viability or acting responsibly and transparently, incorporating your investments pays off. It is reasonable to expect that limited company adoption will continue to accelerate as we move into 2023.”
Are you looking for a way to protect your next property investment, or invest safely as a group? A limited company could be the solution. Arrange your free consultation with GetGround, and find out.