A specialist insurer is warning landlords there are pitfalls in the increasingly popular option of setting up a buy-to-let company.

Purbeck Insurance Services says buy-to-let investors need to be aware that their personal estate could be at risk.

A buy-to-let mortgage under a limited company will usually require a personal guarantee from the landlord as security for the mortgage.

Record numbers

Earlier this week, Hamptons revealed landlords are opting to set up buy-to-let companies in record numbers as they race to benefit from better tax rates.

Limited companies help investors to make their buy-to-let businesses more profitable.

Properties sold by companies are not subject to Capital Gains Tax, which is particularly attractive at present with speculation that Chancellor Rachel Reeves may raise CGT in next week’s Budget.

And the rising number of companies set up to hold buy-to-let properties means the vast majority of new landlord purchases now go into a limited company.

Home and savings on the line

Todd Davison, MD of Purbeck Insurance Services, says: “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.

“It’s a worrying time for buy to let landlords, but there are steps they can take to minimise some of the risks.”

So far this year, 70% of new buy-to-let purchases in England & Wales were made using a limited company, with the remaining 30% being bought in personal names.

By the end of 2024, between 60,000 and 62,000 limited companies will have been created, exceeding last year’s total of 50,004.

Nearly 60% of these new companies have been set up in the South of England.