hamptons home sale

Number of buy-to-let companies passes 300,000, research finds

The total number of companies set up to hold buy-to-let property has doubled since 2017 and now stands at over 300,000, according to research from Hamptons estate agents.

According to results from Hampton’s Monthly Lettings Index, this growth has been primarily driven by existing landlords moving properties from personal to company names to reap the tax benefits.

This major shift has been underpinned by interest rates rising to 6% which means the average higher rate taxpaying landlord with property in their personal name may face paying a £1,716 annual tax bill despite making a loss of £2,479.

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 £2k when moving a buy-to-let from personal to company names.”

It is likely that more buy-to-let companies will be set up in 2022 than in any previous year, despite there being fewer buy-to-let homes bought this year in comparison to last year. 

The research conducted by Hamptons suggests that around 40% of all new buy-to-let purchases are now made via a company structure, a record figure and one which is up from around 10% in 2016 before the Section 24 tax changes were tapered in.  

This means that although the share of homes bought by an investor has remained broadly stable over the last couple of years, an increasing proportion of these purchases go into a company. 

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.

Rising interest rates have increased the advantages associated with incorporation (putting a rental portfolio into a company), particularly for higher rate taxpayers with properties in their own name given they can no longer fully offset mortgage interest payments. 

The average higher rate taxpayer purchasing a buy-to-let today with a 6% interest rate faces a £1,716 annual tax bill despite making a loss of £2,479.

Meanwhile the same landlord with a property held in a company structure would not pay any tax, limiting their annual loss to £1,604. A lower rate taxpayer would face a loss of £763.

Beveridge added: “Limited company investors stand a better chance of turning a profit in a world where mortgaged landlords are coming under increasing pressure.

“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.”

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