More landlords are turning to limited company structures to invest in BTL, Hamptons finds – The Intermediary

Landlords are increasingly using limited liability company structures to own their properties, according to an analysis of data from Hamptons of Companies House.

In September 2024, 5,312 new buy-to-let (BTL) limited companies were created in the UK, up at least 28% on any previous September.

The ability to offset mortgage payments on a pre-tax basis has been a driving force behind this trend in recent years.

Concerns about potential increases in capital gains or inheritance taxes have further increased these numbers.

From January to September 2024, a total of 46,449 companies were created, an increase of 23% over the same period in 2023.

This exceeds the total number of companies created in all of 2021.

It is forecast that between 60,000 and 62,000 limited companies could be created by the end of 2024, up from last year’s figure of 50,004.

The growing gap between personal and corporate tax rates has resulted in almost three quarters (70%) of new BTL purchases being made through companies.

In addition, many landlords transfer properties they personally own into company structures to protect themselves from a difficult tax situation.

This shift became more pronounced after 2016, when tax changes began impacting taxpayers at higher rates, reducing their ability to fully offset mortgage interest payments.

Currently, 74% of the 382,007 companies owning rental properties in the UK were registered following this change.

Despite this growth, only about 15% of rental homes owned by private landlords are owned by corporate entities.

The regional breakdown showed that 59% of new companies were in the south of England, where higher interest rates had a more significant impact.

However, only 42% of properties bought by limited companies this year are in the South, indicating many landlords are looking for higher yields in the Midlands and North.

This year, 54% of new purchases were made by companies on their first, second or third purchase.

Rising rents have helped landlords cope with the impact of higher mortgage rates. The average rent for a new rental property in the UK reached £1,384 per calendar month in September, with annual growth slowing to 4.5%.

This is down from 5.0% in August and 11.7% in September 2023. Notably, September 2024 was the first month since March 2021 that no region of the UK saw double-digit rent growth, indicating that tenant affordability may be reaching its limit.

In London, rent growth has slowed significantly, from a peak of 17.2% in August 2023 to just 2.1% in September 2024. There are few signs of a further slowdown, with average rents in Inner London reaching £3,284 a month, up £1,099. than three years ago.

Aneisha Beveridge, head of research at the Hamptons, said: “The rise in the number of corporate buy-to-let businesses suggests investors seeking refuge are in it for the long term.

“There can be many costs associated with setting up a company, such as accounting costs, stamp duty on property transfers and possibly capital gains tax.

“But with the government constantly changing personal tax rules, working through a company gives investors long-term certainty.

“There may also be financial benefits later in selling the limited company or passing it on to family.

“With increases in inheritance tax set to be a key theme in the upcoming Budget, this could further increase the number of registered landlords.”