Buy-to-let and a limited company

According to the figures, there were a total of 41,700 buy-to-let incorporations in 2020 – this is an increase of 23% on 2019. And it said the numbers had more than doubled since 2016, rising 128%, when tax changes for landlords were introduced. In 2016, the 3% investor stamp duty surcharge came into force and the proportion of mortgage interest deductible from tax on buy-to-lets held in personal names began to be phased out. This has led to a shift in the way investors purchase properties, with increasing numbers shifting towards limited companies to reap further tax benefits.

Between the beginning of 2016 and the end of 2020, more companies were set up to hold buy-to-let properties than in the preceding 50 years combined.

Despite growth of the private rented sector slowing in recent years, an increasing proportion of buy-to-let purchases are now being held in limited companies.

It is estimated 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.

Those landlords based in the south were more likely to shift to a limited company status, according to the research.

This is because the higher cost of property in the south of England meant landlords with properties there were more likely to have mortgages and would therefore have a higher mortgage interest bill if they operated outside of a limited company.

Holding property in a company offered landlords the ability to offset 100% of mortgage interest against profits, while those holding a property in their own name can offset just 20%.

Beveridge explained that as the company buy-to-let market had matured, more mortgage lenders had entered the space.