Southern-based landlords have been most likely to incorporate. Given the high cost of property, generally landlords based in the South are more likely to be mortgaged which means that in cash terms their mortgage interest bill is likely to be higher. Therefore the benefits of incorporating a buy-to-let portfolio into a company are likely to be bigger.
More than a third (34%) of all companies set up to hold buy-to-let properties in 2020 were in London. Together, London and the South East accounted for almost half (47%) of all incorporations.
The tax benefits of holding property in a company derive from the ability of landlords to offset 100% of mortgage interest against profits, while those holding a property in their own name can offset just 20%.
This means that someone who owns a £250,000 property with a 75% LTV mortgage generating £1,000 a month in rent in a company will pay around £1,033 per year in tax. While a lower rate taxpayer owning the same property in their own name would pay 42% more or £1,463 each year. And a higher rate taxpayer would pay 274% more or £3,863.
But whilst those landlords holding their property in a company can offset more costs against their rental income, mortgage interest rates tend to be higher. This means that setting up a company to hold buy-to-let property tends to benefit higher-income taxpayers, or those with multiple buy-to-let properties.