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.”