Buy to let limited companies increase by 23%

The number of buy to let limited companies has experienced a record-breaking increase over the last year. ;
Buy to let

The number of buy to let limited companies has experienced a record-breaking increase over the last year.

Landlords have formed companies to hold their buy to let properties, to take advantage of tax breaks from incorporation.

The estate agent Hamptons highlights that a total of 41,700 landlord companies were introduced in 2020, which is a rise of 23 percent on the preceding year.

Buy to let landlord companies, therefore, became one of the most common businesses to be formed throughout 2020, only beaten by online stores and mail-order firms.

A total of 34 percent of these new companies were formed in London.

Hampton’s states that this is due to the fact that landlord’s mortgages will be higher in this area, as house prices are typically more expensive.

128% increase since 2016

Overall, the number of buy to let landlord companies has increased by 128 percent since 2016.

This radical increase is largely attributed to the tax changes that were implemented in 2016.

The tax changes enforced meant that any individuals or investors who bought additional properties would incur a 3 percent stamp duty surcharge.

Additionally, the proportion of mortgage interest deductible from tax on buy to let properties, which are held in personal names, started to diminish in this period.

There are now a total of 228,743 buy to let companies currently operating across the UK.

Hampton’s property consultant’s comments

The head of research at Hamptons, Aneisha Beveridge says:

“Despite growth of the private rented sector slowing in recent years, an increasing proportion of buy to let purchases are now being held in limited companies,”

“We estimate that around half of all rental properties bought today are being put into a company, up from close to one-in-five during 2016.

“While most of this growth has been driven by larger landlords, smaller landlords, particularly those who are higher rate taxpayers, have also reaped the tax saving benefits from incorporating.”

Aneisha Beveridge additionally comments on the fact that mortgage rates are currently decreasing for those landlords who hold their buy to let properties in a company.

“As the company buy to let market has matured, more mortgage lenders have entered the space,'

'Back in 2016 there were just a handful of lenders who offered company buy to let mortgages, often at a greater premium than today.

'But with more high street names entering the limited company space in recent years, competition has driven down interest rates to within a percentage point of similar products designed for landlords purchasing in their own name.'

Is this a good option for every landlord?

Although there are benefits associated with holding buy to let properties in a limited company, there are factors that will influence the decision to incorporate.

In order to move properties over to a business, landlords are required to sell the property to that company. This incurs stamp duty costs.

There may be implications for the amount a landlord spends on accounts and administration.

Capital Gains Tax applies when individuals sell property, but not when sold by a limited company, where Corporation Tax is applicable instead. Irrespective of your immediate plans this should be considered.

Professional tax advice can therefore be critical to making the right decision.

A mortgage advisor can identify a suitable product, based on whether you apply through a limited company or not, but they cannot give you tax advice on which is the best route for you to take.

This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.