As the number of landlords operating under limited company structures rises 28% year on year, Purbeck Insurance Services is warning buy-to-let investors that their personal estate could still be at risk. This is because a buy-to-let mortgage under a limited company structure will usually require a personal guarantee from the landlord as security for the mortgage.
According to Hamptons, September 2024 saw 5,312 new limited companies established for buy-to-let purposes, around 28% more than in any previous September. Furthermore, 67% of landlords planning to buy in the next 12 months plan to do so through a limited company according to Paragon Bank.
Todd Davison, MD of Purbeck Insurance Services said: “There has been a steady rise in landlords choosing to operate in limited company structures for the tax advantages. More recently, concerns over potential changes to Capital Gains Tax (CGT) appear to have driven a big rise in new businesses established as buy to let operations. Landlords using limited companies to manage their BTL portfolios would only pay corporation tax at 19% if their profits are below £50,000. This would be up to 45% for individual additional-rate taxpayers.
“However, when mortgaging or remortgaging, the director will need to sign a personal guarantee. This would put their personal assets such as their family home and savings on the line if for some reason they could not meet the mortgage payments.
“Fortunately they can mitigate that risk through Purbeck Professional Landlord Personal Guarantee Insurance. This will cover 80% of an outstanding mortgage if repayments fall into arrears and the lender seeks to take action to recover the property.
“It’s a worrying time for buy to let landlords but there are steps they can take to minimise some of the risks. “
