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Record number of landlords move to buy-to-let companies for tax perks

Written by: Lana Clements
The total number of companies set up to hold buy-to-let property has doubled since 2017 and now stands at a record of over 300,000, data reveals.  

The increase is down to existing landlords moving properties from personal to company names for tax benefits, Hamptons found.

Around 40% of new buy-to-let purchases are also being made in a company structure, the estate agent estimated.

The average company with outstanding mortgages, now holds 3.3 mortgaged properties.

Over the last 12 months to September 2022, a total of 50,445 new companies were set up to hold buy-to-let property – the second highest figure in any 12-month period.

The average higher rate landlord faces an annual tax bill of £1,716 despite making a loss of £2,479, Hamptons’ calculations showed, as mortgage rates jump above 6% for investors.

Meanwhile, the same landlord holding property in a company structure would not pay any tax.

Better chance of turning a profit

Aneisha Beveridge, head of research at Hamptons, said: “The record number of landlords now holding properties in a company means it’s rapidly becoming mainstream among investors. The number of new incorporations is likely to remain relatively high over the next 12 months on the back of the stamp duty cut which saves the average investor just under £2,000 when moving a buy-to-let from personal to company names.

“But the big driver is the financial advantage of being able to offset mortgage payments as interest rates rise. This means that limited company investors stand a better chance of turning a profit in a world where mortgaged landlords are coming under increasing pressure.”

Beveridge added: “While rapidly rising rents have softened the impact of higher interest rates for landlords, rental growth only offsets around a fifth of their increase in mortgage costs.  This means that a landlord who bought an average home two years ago with a typical 25% deposit would need to increase their equity from 25 to 55% if they re-mortgaged today in order to maintain the same monthly returns compared to when they first bought. For the average investor, this means stumping up an extra £67,000 in cash.”

Rental growth falls

The figures come as rental growth softened in September.

The average cost of a new let rose 6.9% over the last 12 months, dipping from 7.4% in August.

September also saw the first annual increase in the number of homes available to rent in five years.

Across Great Britain, there were 14% more homes available to rent than in September 2021.

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