Record number of buy to let landlord companies set up

18 January 2021 | Renting

Record number of buy to let landlord companies set up

Research by Countrywide agency Hamptons shows that during 2020 some 41,700 new buy to let limited companies were formed.

That’s a record for a single year and an increase of 23 per cent on 2019. 

Over a longer term, Hamptons says more companies were set up to hold buy to let properties between early 2016 – when the three per cent stamp duty surcharge on buy to let properties was introduced – and the end of 2020, than in the preceding 50 years combined.  

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And this means that at the end of 2020 there were a total of 228,743 buy to let companies up and running, again an all-time record.

More than a third of these buy to let companies are based in London; add in those based in south east England, and this comes to 47 per cent of all BTL incorporations.

Buy to lets were the second most common company founded during 2020, beaten only by the number of companies selling goods online or by mail order.

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. 

But whilst those landlords holding their property in a company can offset more costs against their rental income, mortgage interest rates tend to be higher. This means that setting up a company to hold buy to let property tends to benefit higher income taxpayers, or those with multiple buy to let properties.

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.”

This post has originally been featured in Letting Agent Today.