An increasing number of landlords are opting for limited company structures to manage buy-to-let properties.
- September 2024 marked a significant 28% rise in new limited companies for buy-to-let purposes compared to prior Septembers.
- The trend is driven by the potential to offset mortgage payments before tax, amidst fears of rising Capital Gains Tax or Inheritance Tax.
- Nearly three-quarters of new buy-to-let purchases are made through companies, largely due to the tax benefits and changes post-2016 affecting higher-rate taxpayers.
- The geographical shift sees landlords looking beyond the South of England for investments, despite it hosting a majority of newly formed companies.
In a notable trend, many landlords in Great Britain are increasingly establishing limited companies to manage their buy-to-let (BTL) investments. According to analysis from Hamptons utilising Companies House data, September 2024 witnessed 5,312 new limited companies created solely for buy-to-let purposes, marking a 28% increase against any previous September. This growth is significantly influenced by the ability to offset mortgage payments before taxation, with additional concerns of potential hikes in Capital Gains Tax or Inheritance Tax fuelling this transition.
From January to September 2024, a total of 46,449 companies were established for BTL investments, representing a 23% uptick compared to the same timeframe in 2023. This surpasses the total number referred to in the entirety of 2021 and indicates projections of 60,000 to 62,000 limited corporations being established by the year’s end, surpassing the previous total of 50,004 the prior year. Much of this momentum is attributed to the divergence between personal and corporate tax rates post-2016, where higher-rate taxpayers lost the ability to fully offset mortgage interests.
Interestingly, nearly three-quarters of all new buy-to-let purchases are now conducted through companies. This strategic shift provides landlords a buffer against a complex tax environment. Furthermore, it has been observed that landlords are transferring personally owned properties into company structures as a protective measure. Currently, about 74% of the 382,007 companies managing rental properties in the UK were set up post the tax changes initiated in 2016, indicating a long-term adaptation by landlords.
Despite this burgeoning trend, still only roughly 15% of rental properties owned by private landlords are held within corporate entities. Geographically, the South of England accounts for 59% of these new companies, likely driven by higher interest rates; however, only 42% of newly purchased properties by companies this year have been in the South. This suggests a substantial number of landlords are seeking opportunities in the Midlands and North, potentially for more advantageous yields.
The rental market dynamics also reflect these strategic changes. Landlords have been somewhat insulated from the challenges of higher mortgage rates due to rising rents, with the average rent for newly let properties reaching £1,384 per calendar month in September. Although rent growth year-on-year has slowed to 4.5%, down from August’s 5.0% and significantly from 11.7% in September last year, it remains evident that tenant affordability is nearing a crucial threshold. Housing affordability, particularly in London, is under scrutiny, with rents in Inner London averaging £3,284 per month, despite a notable easing in rental growth.
This shift towards limited company structures among landlords signals a strategic move to mitigate tax burdens and navigate an evolving fiscal landscape.
