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Landlords rush to incorporate - record numbers last year, says agency

New research suggests there’s been a rush amongst landlords to set up companies through which to manage or purchase buy to let properties. 

Research by lettings agency Hamptons shows that during 2020 some 41,700 new buy to let limited companies were formed - a record for a single year and an increase of 23 per cent on 2019. 

This has been part of a longer-term trend since the introduction of the additional homes stamp duty surcharge in 2016 - since that time alone, there have been more incorporations for buy to let than in the previous 50 years combined. 


Of the 228,743 buy to let companies existing at the end of last year, over a third were in London; add in those based in south east England, and this comes to 47 per cent of all BTL incorporations.

The tax benefits of holding property in a company derive from the ability of landlords to offset 100 per cent of mortgage interest against profits, while those holding a property in their own name can offset just 20 per cent. 

This means that someone who owns a £250,000 property with a 75 per cent loan to value mortgage generating £1,000 a month in rent in a company will pay around £1,033 per year in tax. A lower rate taxpayer owning the same property in their own name would pay 42 per cent more or £1,463 each year.  And a higher rate taxpayer would pay 274 pr cent more or £3,863. 



Aneisha Beveridge, head of research at Hamptons, comments: “We estimate that around half of all rental properties bought today are being put into a company, up from close to one-in-five during 2016.  While most of this growth has been driven by larger landlords, smaller landlords - particularly those who are higher rate taxpayers - have also reaped the tax saving benefits from incorporating.

“As the company buy to let market has matured, more mortgage lenders have entered the space. Back in 2016 there were just a handful of lenders who offered company buy to let mortgages, often at a greater premium than today.  

“But with more high street names entering the limited company space in recent years, competition has driven down interest rates to within a percentage point of similar products designed for landlords purchasing in their own name.”

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  • George Dawes

    Thank god one of my properties has been ltd for over 50 years , not by design , pure luck

    I’m thinking of changing the other one from a partnership to one too , if that’s feasible of course

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    I am a mathematician by trade and unless the author can justify these figures, they look like they have just been plucked from thin air by an extremely irresponsible person. I have never been able to see that much benefit for myself in incorporation, so maybe someone can write a serious article with some proper figures in it?

    1) In terms of interest relief, this has NOT been phased out as so many are so fond of claiming. Rather, it has been gradually restricted to a 20% limit, the same as basic rate tax. So it only affects those lucky enough to be higher or additional rate taxpayers with a mortgaged BTL property. Higher rate tax can be avoided in a number of ways such as by making a gift aid donation, paying into a private pension or refurbishing a property.

    2) The effect on higher rate tax payers is equivalent to increasing the interest rate by a factor of ⅓. This is because you now have to pay 80% of the interest after 20% relief instead instead of 60% after 40% relief, an increase of ⅓ in the overall cost of the interest. My last mortgage deal was 2.4% so would be equivalent to 3.2% with 40% relief (1.92% net in each case). Commercial mortgages are still significantly higher than private BTL so unless things change you will probably be better off with the lower rate than the higher level of relief.

    3) Overall tax is higher with incorporation. This is because you pay 19% tax on any profits, plus tax on dividends. For a lower rate taxpayers dividends tax is 7.5%, so the total liability is 19% + 7.5% × 81% = 25.075%, vs 20% for unincorporated landlords. For higher rate payers it is 19% + 37.5% × 81% = 49.375%, vs 40% for unincorporated landlords.
    So unless you are just building up the business and not taking dividends then you could be worse off.

    4) Businesses have to register and prepare accounts for publishing which private individuals do not have to do.

    The main advantages for a business seem to be:

    1) You can deduct capital costs which private landlords cannot, which is useful if you are running a professionalised business where everything is bought brand new. I have an 8 year old car and buy most of my stuff from auction (pandemic willing) which means in the rare case that something gets broken it really doesn't matter. It's often better quality than new stuff as well.

    2) As the property is owned by the business, you can sell the business instead of the house, thus avoiding the punitive stamp duty regime in future, or create joint ownership by issuing shares in the business

    3) I think you can pass the business on to heirs and descendants as a going concern which may avoid inheritance tax.

    I'm sure there are plenty of people out who can add to the discussion!



    Excellent points.

    One distinct possibility is the Government treating pure property companies differently from other limited companies to remove any perceived advantages of incorporating.

    After all property capital gains tax is far higher than normal cgt.

    One potential advantage I thought might be worthwhile is selling shares every year to get the 12.3k tax free gain, based on the properties growing in value, but I don't know if that would work since I would only sell shares to a family member or a trusted friends and probably buy these back the following tax year.

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    Robert, that is a good point! You could certainly sell the shares and buy them back again shortly afterwards, although i don't know if HMRC could object to it as a form of tax avoidance.

    I doubt the govt will want a level playing field with private landlords because they seem to be intent on getting rid of them, albeit without any plan to replace the lost capacity with social housing, just BTR and professional companies (run by their mates no doubt).

    For those that want to try out the corporate route I have heard that it is possible to run a private rental property under the aegis of a trust as if it were a property company/SPV.

    I'm not planning on selling my properties any time soon unless the rental market goes belly up or I lose interest but even then I could farm them out to agents to create a largely passive income. I think if I just give them to my children in my will and maybe some to charity, they will have to pay just the IHT, rather than CGT on the sale and then IHT upon death.

    Another possibility is to transfer a property to joint ownership and then full ownership after a while. I'm not sure if that stealth method can avoid CGT or not? Also, selling my main residence (nill-rated) and then establishing residence in a previously rented property before selling that in turn may help.

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    I am not a mathematician just a LL all this stuff just blows my head. Its very simple for me just pay all, it should be the same for every one but its not, they have people jumping through hoops if you do it this way it so much or another way its different its ridiculous, so for me its straight 20% to £50k minus some maintenance & replacement costs, then Straight 40% on the rest to 150k. is that simple enough. When you go over a certain figure your personal allowance is gone so can't avail of that, When you go over £50k if you have Children , the Children Allowance is gone it doesn't matter if you paid into it for years, its reserved very often for people that never contributed, the same goes for child care / nursers fee / school costs etc, I believe they have a special Capital Gains Tax for higher tax payers for being so stupid, lower earners 10% and 18% for LL's generally 28% mostly on inflation, no indexation or taper relief, or allowance for currency devaluation but don't worry it going up in March to your tax rate 40% /45% inst that marvelous. Don't think you are finished with them yet another 40% Grave yard Tax waiting for you at the Cemetery gate that will give you a good send off, its been a waste of time you ever being here, some Legacy.

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    I'm agreeing with Peter on this one, when ever I have asked my accountant about LTD company status he has always advised against it, like Peter I buy most things at auction including cars, I was in the motor trade for 30 yrs so I do know what I'm doing at a car auction, ie which ones not to bid on, I also set a max of £10k for a car because I've seen how fast expensive cars lose money, I'm not mortgaged and own my properties jointly with my wife, so we both keep just below 40% tax, I did pay 40% tax up to 13 yrs ago though while still in the motor trade, and that hurt every time I paid a tax bill.

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    Well I know my way around Auction Houses having first bought there in the Connaught rooms in Holborn in 1972, can be risky at times, unlikely to get a loan without committing another property dangerous territory in London. Have to know about property, know your market watch out for the sharks. Sometimes a cartel of Asians working to together unless you are a regular you will not know they don't bid against each other but might you up for one of their friends, and the owner can bid on his own property is allowed and often he or his friend does, you will also have the Bowler Hats from Golders Green to take into Account. Those days they didn't have to Register to Bid and sometimes there would be a runner I have seen that too, probably the owner giving someone a few quid to bid it up but if unlucky and it fell to him he would disappear in the crowd, other times the Auctioneer would be taking bids off the wall as we used to call it (pretend Bids). I have seen Portfolio Holder just buy anything when the market was rising it was no difference whether it was half derelict, that why most of them are in the Auction, to them just write the Cheque, because next year it was worth more but you can get that out of your head those days, in that situation I have walked away from Auction went into Estate Agent & bought a House on the way home that I had previously looked at and better value. I had time on my side a couple of months to Complete and Surveyor to ask questions, not panicked to 14 or 28 days to completion by the drop of the gavel.


    Agreed, and I've been guilty of running up the price of property at auction, my solicitor's legal secretary was selling her deceased parents house and I made sure it got up to reserve for her, and in another case an idiot landlord here in Norwich ran up the price of a property belonging to his father, only the fool ran it up to over reserve and the hammer came down on his bid, now that was funny.

  • George Dawes

    Hahaha , brilliant. 😂

    What a berk , I’d love to have been in the auction room .. I bet that got the whole lot gasping !


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