The landscape of property investment in Bristol has been evolving, with an increasing number of landlords making the strategic choice to set up as limited companies. Recent figures suggest a pronounced rise in this trend, but what's driving this decision?
A Glimpse into the Trend
Recent observations highlight that many landlords, especially in Bristol, are moving their buy-to-let portfolios into limited company structures. Statistics suggest that in 2023 alone, a remarkable 74% of buy-to-let property acquisitions were made through such a structure. So, why are local landlords leaning in this direction?
Navigating Complex Regulations The lettings market is, undeniably, challenging. With heightened compliance demands and ever-evolving regulations, landlords are reassessing their long-term investment strategies. Although there's a slight easing in the government's stance towards landlords, challenges such as the non-deductibility of mortgage interest from taxable property income remain.
The Appeal of the Limited Company Structure One of the primary reasons landlords are drawn to this structure is the allure of lower corporation tax rates, especially when compared to standard income tax rates. This setup also allows landlords to offset mortgage interest against the company's revenue.
Moreover, whilst securing a buy-to-let mortgage through a limited company might come with a heftier rate, it can often enable landlords to access larger loan amounts due to less stringent stress testing.
Considering the Portfolio Size For landlords with expansive property portfolios, the corporate structure is particularly enticing. Not only are such landlords potentially in higher tax brackets, but by operating through a limited company, they can retain and reinvest profits without the immediate burden of income tax. Such a mechanism facilitates portfolio expansion.
Recent data underscores this, revealing that, on average, properties held within a limited structure increased from 7.8 in late 2021 to 12.3 by mid-2023.
Weighing the Benefits and Drawbacks Of course, no investment strategy is without its considerations. Landlords should be aware that whilst the limited company structure offers many advantages, profits withdrawn for personal use would be taxed again. Additionally, selling a property within this setup doesn't provide capital gains tax allowances, and there's a corporation tax implication.
Further, operating through a limited company requires meticulous administrative work, which could be daunting for some, especially those with a smaller property count.
In Conclusion Whilst the limited company structure presents numerous advantages, particularly for landlords with sizeable portfolios or those planning to expand, it's essential to assess individual circumstances. At R&G Property Bristol, we recommend landlords seek expert advice before embarking on any investment shift.
Disclaimer: This content serves as a general insight and does not substitute legal or tax advice. We advise readers to consult with relevant professionals before making any property investment decisions.
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