Should micro landlords consider incorporating?

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Is now the best time to incorporate? Micro landlords are beginning to ask this question more and more, before advancing plans to develop their portfolios and secure more funding.

49% of professional landlords, those with four or more rental properties, are planning to expand their portfolios.” According to research that was conducted recently by Handelsbanken.

In nearly all cases, they should deliberate incorporating, unless they have done so previously, even if it is only to work out whether it would be a worthwhile endeavour.

Why a Limited Company?

Running property letting businesses through limited companies has risen in popularity in recent times because of several factors.

Tax restrictions

The move to this business structure was mainly due to changes to tax that restricted the total tax relief that individual landlords could claim on the financing costs of their residential properties. However as limited companies can still claim full tax relief for financing costs, and with interest rates being predicted to continually rise in the near future, corporate ownership is appearing more and more alluring.

Control for landlords

On top of this, limited company structures have other perks, which should not be ignored. One of which is the control it offers landlords in regards to determining their income.

For instance, it can be more tax efficient to manage a portfolio of property within a corporate structure, especially if the landlord intends to leave profits in the business for reinvestment.

As the amount of corporation tax payable on company profits is comparatively low, taking less income from the business would incur smaller income tax charges, but this may differ in the future. Limited companies also enable landlords to appoint multiple shareholders, which can aid tax-efficient plans for succession.

Limited liability status

On top of this it also offers landlords limited liability status, which can help to ring fence risk and protect their personal assets in the event of commercial claims.

Incorporating and Taxes

Can lead to substantial tax charges

If not planned properly, incorporating can lead to substantial tax charges, including capital gains tax (CGT) and stamp duty land tax (SDLT). Before making any decisions, landlords should seek professional tax advice, as the process of incorporating is not simple.

Can be prohibitive

While large-scale landlords might qualify for tax reliefs small-scale landlords, and landlords who do not operate their businesses in partnership with other investors, might not qualify. Even if long-term tax benefits are attained, the initial tax expense of incorporating may be prohibitive for these landlords.

Cost benefit analysis should be conducted

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In any scenario, a comprehensive cost benefit analysis should be conducted and the conditions for tax relief eligibility should be properly evaluated. According to HMRC’s guidelines landlords must, at the very least, be able to show that they are devoting at least 20 hours a week to actively managing their portfolio.

Is Incorporating The Right Thing For All Landlords?

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This obviously won’t apply to accidental landlords who just have one or possibly two rental properties available for rent. Even larger-scale landlords might find it difficult to meet the requirements if they work full-time in another job.

Of course, not all landlords who invest in buy-to-let properties should incorporate. Additionally, while the majority of banks are ready to finance both corporate and private real estate investments, it is crucial to remember that corporate interest rates could be higher.

Therefore the tax benefit of incorporating must be set against the potential increase in interest charges, that could negate any tax benefits gained.


The costs of managing a portfolio have increased rapidly over the past ten years, and landlords now face several new challenges, such as additional compliance concerns and potential liabilities. For instance, landlords must regularly inspect any electrical and biosafety systems, as well as the immigration status of their tenants.

Finding the right balance

Finding the right balance between risk and return has gotten harder for an increasing number of landlords, and in some situations, selling out has appeared like the only sane course of action. For others though, expansion might offer a solution that is both satisfying and worthwhile. In which case incorporation may enable them to lower their personal risk while also gaining more control over their revenue and flexibility in the future.

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