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Tax-efficient landlords rush to set up companies for buy to lets

A record number of companies were set up last year to hold buy to let property.  

In total there were 47,400 new BTL companies incorporated in 2021 across the UK according to Companies House data, analysed by the Hamptons lettings agency.

This is nearly twice the number that were set up in 2017 when it was announced that investors with properties in their personal names would no longer be able to claim mortgage interest as an expense.  

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While individual landlords are effectively taxed on turnover, company landlords are taxed on profit.  This has meant that for some landlords – particularly those who are higher rate taxpayers – it has become more profitable to move their buy to lets into a company.

However, the rate of growth in new incorporations fell compared to previous years, with a 14 per cent increase recorded between 2020 and 2021, down from a 30 per cent increase recorded between 2019 and 2020.

While the number of BTL companies up and running in the UK passed through the 200,000 mark as the country emerged from the first lockdown, by 2021 this figure rose to a new total of 269,300.  

Some 61 per cent of these have been set up since the withdrawal of mortgage interest relief which began in April 2017.

The average BTL company has been operating for 9.2 years, a figure which has fallen amid the rising number of new incorporations over the last five years.  

At the other end of the scale, 7,900 or three per cent of companies have been running for more than 50 years, while 440 have been going for more than a century.

Buy to let companies currently hold a total of 583,000 mortgaged properties, accounting for around 29 per cent of all existing BTL mortgages nationally.  This figure has increased from 26 per cent over the last 12 months.

The bulk of new BTL companies set up in 2021 were in London and the South East, with the two regions together accounting for 45 per cent of all new incorporations. 

 

While the number of buy to let incorporations has continued to grow, around 25,100 have closed their doors since the onset of the pandemic.  

Some 15,200 companies closed in 2021 which equates to around six per cent of all buy to let companies up and running today.  

The average company closed down after 5.8 years, a figure which has fallen steadily in recent years as the number of incorporations has increased.

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    When you transfer properties from personal ownership to company's, do you have to pay capital gains tax?

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    Yes - and stamp duty, legal fees, mortgage fees etc.

    One potential avenue is to own the properties personally but rent to a limited company you own at minimal profit and the company rents the properties to tenants and only pays corporation tax on the rental profit. You then get paid dividends, part of which is tax free.

    I've often wondered about the possibility of joint ownership with a company owned by me and selling a £12000 chunk of the property to the limited company every year. Not sure how this wouldn't be legal but the property would need to be mortgage free.

    My main reason for doing nothing about this is I don't trust the government not to impose the same tax treatment on properties owned by a small limited company whilst continuing to favour larger plc's etc.

     
    Z S
    • Z S
    • 17 January 2022 11:56 AM

    Would strongly recommend you to speak with a specialist tax accountant that can advise you the best way forward, as in some cases it is not worth transferring your personal properties into a company due to the cost implications and returns.

     
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    I believe the Govt has also made the rules regarding taking dividends instead of income less favourable than they were. This may not be the slam dunk solution for everyone.

     
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    The renting to a company option looks interesting, Robert. This rental agreement will have to cover costs such as service charges and maintenance expenses, otherwise company's profits will be artificially inflated leading to a higher tax charge.

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    Better for the Company to pay Corporation Tax than you pay 40 or 45% income tax. For landlords who aren't paying 40 or 45% income tax, there seems to be little benefit in going down the company route.

     
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    Exactly - it's shocking how many times I see reports that don't make it clear that Section 24 only affects higher rate tax payers. Lots of pushing people to incorporate with no explanation that it's not always necessary or even advisable.

     
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    I agree Debra, only worthwhile if you are a 40% tax payer and have large mortgage repayments

     
  • George Dawes

    I trust politicians about as far as I can throw them , with both hands tied behind my back

    Theodor Cable

    Pah! Any politician would slime out of that in nanoseconds.

     
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    How can you not trust politicians? There were no parties at No. 10 & if there were Boris didn't go and if he did he thought it was work!

    I can tell the difference between work & a party so I must be cleverer than Boris!

     
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    Tricia

    I usually totally agree with you but in this case I have enormous sympathy for Boris who has apologised for any lapse of judgement and accepted that many officials did break or at least bend the rules.

    I spent a couple of years living away from home and "above the shop" and found work and leisure morphed together, when I and the other "inmates" rarely switched off from work and certainly never did before around 9.00 pm but we would often pause for a snack and a beer but probably continue taking shop even then.

    I think it's entirely credible for Boris to regard a 25 minute interlude around 6.00 pm to thank people working long hours as work. Lefties can't understand why many people don't clearly delineate between work and leisure or that a garden can be part of a workplace.

    It's less credible for Keir Starmer to defend quaffing a beer inside with multiple others from multiple housholds when this was against the rules on several counts.

     
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    Robert Brown - Kier Starmer was eating take away and drinking beer in the actual office they were working in though, so they were all together there anyway.

     
  • icon

    You have to be realistic, obviously people in goverment did not beleieve government advice, so they partied. ie it was a hoax. Which has ruined lots of people. Thatcher did something similar in the early 80s when she crashed British Industry and pretended that interest rates went up on their own. Then their is the Ted Heath "Common Market" (EU). Mad Cow disease, Maastrich Treaty etc. etc

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    The way tax is going for the rental sector, there will be fewer and fewer people attracted to invest in BTL and the economy will suffer, shortage of rental stock etc. leading to even more house price inflation and so on. a change of government would be even worse. whats the solution?

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