Research and reports
The number of landlords setting up buy-to-let property companies continues to rise, according to new research.
Changes to buy-to-let mortgage relief, which started in 2017, have encouraged landlords to transfer ownership of their properties due to tax benefits.
Read on to find out where landlords are setting up companies, the impact of the controversial tax changes, and whether landlords using company ownership will continue to rise in 2022.
Analysis of Companies House data, carried out by estate agency Hamptons, shows that more buy-to-let companies were set up in 2021 than in any previous year.
Here’s an overview of the key findings:
The biggest annual rise in new buy-to-let companies last year was recorded in Northern Ireland (36 per cent).
This was followed by:
London and the South East accounted for 45 per cent of all new incorporations last year, with over 15,000 set up in the capital alone.
A higher number of incorporations in these areas is because there are more tax advantages for landlords due to higher average rents.
The North East was the only UK region where fewer buy-to-let companies were set up year-on-year, dropping by six per cent.
The number of buy-to-let companies in the UK rose to 269,300 last year, up from 200,000 in mid-2020.
UK buy-to-let companies hold a total of 583,000 mortgaged properties, almost a third (29 per cent) of all outstanding buy-to-let mortgages. The figure has increased three per cent over the last 12 months.
Despite a surge in the number of new buy-to-let companies in 2021, the rate of growth fell compared to previous years.
The 14 per cent rise recorded between 2020 and 2021 is less than half of the 30 per cent increase between 2019 and 2020.
According to Aneisha Beveridge, Head of Research at Hamptons, the number of new buy-to-let companies may have peaked last year:
“This is partly a product of last year's stamp duty holiday which served to slow the fall in new investor numbers.
“Additionally, many investors who have wanted to make tax savings by transferring properties from a personal to a company name have had five years to do so.”
The reason why so many landlords have set up property companies in recent years is because of controversial tax changes that started in 2017.
Previously, landlords could deduct 100 per cent of mortgage interest from rental income when paying tax.
However, the government gradually reduced buy-to-let mortgage interest tax relief, replacing it with a 20 per cent tax credit in 2020.
This means many landlords – particularly higher-rate taxpayers – can reduce their tax bill by starting a property company and paying corporation tax instead of income tax.
A third of landlords said the reforms have had the greatest effect of all tax changes on their rental business, according to a recent survey by the National Residential Landlords Association and the London School of Economics.
Landlords who own properties individually have to pay tax on turnover, while landlords with a property company pay corporation tax on their profits.
As a result of the government restricting buy-to-let tax relief, it’s more profitable for many landlords to move their properties into company ownership.
Some of the other benefits of incorporation include:
Despite the advantages, there are downsides to consider such as increased costs and admin. That’s why you’ll need to weigh up the pros and cons carefully, getting professional advice when you need it.
If you’re thinking about transferring ownership of your property in 2022, read our guide to setting up a property company.
It includes top tips on:
Are you considering starting a property company in 2022? Let us know in the comments below.
Photograph 1: Paul Maguire/stock.adobe.com
Photograph 2: fizkes/stock.adobe.com
Conor Shilling is a Copywriter at Simply Business with over two years’ experience in the insurance industry. A trained journalist, Conor has worked as a professional writer for 10 years. His previous experience includes writing for several leading online property trade publications. Conor specialises in the buy-to-let market, landlords, and small business finance.
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