Landlords are increasingly choosing limited company structures for their buy-to-let property investments, reveals data from Hamptons. This shift is motivated by tax efficiencies and financial protections.
- In September 2024, a notable rise in the formation of limited companies was observed, marking a significant increase from previous years.
- The potential increase in Capital Gains and Inheritance Taxes is a driving factor for landlords adopting this structure.
- The majority of new buy-to-let purchases are now made through companies, reflecting a strategic response to tax challenges.
- Rising rent prices are helping landlords counteract the impact of increased mortgage rates, although growth is slowing.
September 2024 witnessed a significant surge in the formation of limited companies for buy-to-let (BTL) purposes, according to an analysis of Companies House data by Hamptons. A total of 5,312 new limited companies were established, marking a rise of at least 28% compared to any previous September. This trend in recent years has been largely driven by the ability of limited companies to offset mortgage payments before taxation.
Concerns over potential increases in Capital Gains Tax and Inheritance Tax have further contributed to the trend of landlords incorporating their properties into limited companies. Between January and September 2024, 46,449 companies were set up, representing a 23% increase compared to the same period in 2023. This figure surpasses the total number of companies established throughout 2021. Projections suggest that by the end of 2024, up to 62,000 limited companies could be created, exceeding last year’s total of 50,004.
Nearly three-quarters (70%) of new BTL property acquisitions are now conducted through company structures. Many landlords are transferring their personally owned properties into corporate entities as a protective strategy against a challenging tax environment. This shift became increasingly pronounced following tax changes in 2016, which affected higher-rate taxpayers’ ability to fully offset mortgage interest payments. Presently, 74% of the 382,007 companies holding rental property in Great Britain were incorporated following those changes.
Despite the rise in company incorporation, only about 15% of rental homes owned by private landlords are held within corporate structures. The regional distribution indicates that 59% of newly formed companies are located in the South of England, where higher interest rates have had a more noticeable impact. However, the trend in property purchases by these companies this year shows a shift towards the Midlands and North in search of better yields.
Rising rental prices are aiding landlords in managing the effects of increased mortgage rates. In September, the average rent for a newly let property in Great Britain reached £1,384 per month. However, the year-on-year growth has decelerated to 4.5%, down from 5.0% in August and 11.7% in September 2023. Notably, September 2024 marked the first month since March 2021 without any double-digit rental increases across the regions, indicating that tenant affordability constraints are becoming more prevalent.
London, in particular, has seen a marked reduction in rental growth, dropping from a peak of 17.2% in August 2023 to just 2.1% in September 2024. Nevertheless, there is little indication of further deceleration in rental prices, with average rents in Inner London reaching £3,284 per month, a significant increase of £1,099 since three years ago.
The trend towards using limited company structures for buy-to-let investments is fuelled by tax advantages and is expected to continue growing.
