Surge in limited company buy to let incorporations

According to data supplied by leading real estate company, Hamptons, the private rental sector saw record demand for limited company buy to let mortgages in 2023.

The data indicates a remarkable surge in landlords choosing to structure their property portfolios within a limited company.

2023 saw a record-breaking 50,004 limited companies being set up across the UK for buy to let investment, exceeding the previous year's record by 3 percent.

Momentum gathering despite reduction in property purchases

The heightened demand for limited companies within the private rental sector began in 2016, when changes to tax regulations for personal landlords made incorporating an attractive option.

However, it appears the trend has gained further momentum in 2023, even as the overall number of homes purchased by landlords experienced a decline.

What is particularly noteworthy is that this surge in incorporations occurred against the backdrop of a challenging market, characterised by higher mortgage rates and increased financial pressures on property investors.

There has been an 11.6 percent uplift, in the number of limited companies set up for buy to let investing, since the start of 2023 up until the time of writing – with 345,426 limited companies for buy to let properties active in the United Kingdom.

The majority of these companies, around 68 percent, were set up between 2017 and 2023, aligning with the period when tax changes impacting the private rental sector were phased in.

All the active limited companies in the UK collectively hold an impressive 615,077 properties.

The Hamptons research team found that 75 per cent of the properties held under limited companies are mortgaged. According to Hamptons, this is a higher proportion of mortgaged properties than those held in personal name.

While on the surface this may seem surprising, a limited company structure allows landlords to deduct their mortgage interest costs from their taxable property income. So, while not every situation will suit a limited company structure, there are definitely incentives for some landlords with mortgages to incorporate.

The drawback to incorporating, however, is that it does come with upfront costs (the process essentially involves selling the property to the limited company, so one example of upfront costs is any stamp duty land tax that is payable).

Small portfolio landlords drive the trend

A further insight from the data showed that growth in buy to let incorporations has been predominantly been driven by smaller portfolios, as reflected in a 21.9 per cent increase in the number of homes held by companies with a single property. This contrasts with a 3.8 per cent increase for companies owning 20 or more homes.

This suggests that even landlords with a small number of properties may benefit from the tax efficiency offered by incorporating. This may be because incorporating can be particularly advantageous to higher rate tax payers, so employment income may be influencing this trend.

Commercial Trust can secure a limited company mortgage

If you are thinking of purchasing or remortgaging a property through a limited company, please contact us. We will look for the most competitive rate available to you from our wide range of lenders.