The Greater Exeter Area’s residential market has been witnessing a significant trend in property investment, particularly in the buy-to-let sector. Leading residential agents Wilkinson Grant & Co have provided valuable insights into this evolving landscape, reflecting on the data released by Hamptons which shows that the number of limited companies established to hold buy-to-let properties in the UK hit record highs in 2023, with an impressive count of 50,004 new limited buy-to-let companies.
This trend is reflected in the vibrant Greater Exeter Area property market. The increase in limited companies for property investment is largely driven by recent economic shifts and changes in mortgage rates. As mortgage rates climbed in 2023, so did the inclination of landlords to register limited companies, providing them with more advantageous tax relief options, especially for those in higher tax brackets.
Wilkinson Grant & Co highlights the pivotal decision landlords face when investing in buy-to-let properties: whether to buy as an individual or though a limited company. For landlords with a portfolio of properties, the latter often proves more tax efficient. Purchasing through a limited company allows payment of corporation tax, which can be more favorable than individual income tax rates.
A crucial driving factor behind this shift, as pointed out by Wilkinson Grant & Co, is the change in tax credits affecting landlords’ investment strategies. Since April 2020, landlords can no longer deduct mortgage interest from their total rental income when calculating taxable profit. This restriction doesn’t apply to limited companies, enabling them to be taxed at 19% profits, compared to the 40-45% income tax rate for individual purchasers
Another advantage of this approach, especially pertinent to the Greater Exeter Area’s dynamic market, is the ability for investors to grow their portfolios more rapidly. Profits can be retained within the company for future investments without immediate income tax implications. Furthermore, investing through a limited company offers a degree of financial security by legally separating the investment from personal finances, reducing personal liability.
However, Wilkinson Grant & Co also stress the importance of being aware of the potential drawbacks. Properties sold by a limited company are subject to capital gains tax. Additionally, but-to-let mortgages for limited companies often come with higher interest rates and fees compared to individual mortgages.
Wilkinson Grant & Co emphasises that investing in property through a limited company involves more stringent administrative and legal responsibilities. This often necessitates professional advice and expertise, a service they are well-equipped to provide, in conjunction with local solicitors and accountants with the necessary experience and expertise – especially valuable for investors navigating the complexities of the thriving Exeter property market, ensuring informed decisions are made in this evolving landscape.
Call our Lettings office on 01392 455920 – for Exeter sales 01392 427500, Topsham and East Devon sales 01392 875000 or New Homes 01392 455926.
WILKINSON GRANT & CO.