General   |   January 31, 2022   |   Charlotte Hagan

Sharp rise in buy-to-let companies set up in 2021

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Last year saw a record number of companies set up to hold buy-to-let property. In total there were 47,400 new buy-to-let companies incorporated in 2021 across the UK, according to Companies House data.

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.  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 let into a company.

Half of new buy-to-let mortgages in 2021 were taken out by a company rather than someone buying in their personal name, meaning we estimate that around half of all new landlord purchases last year used a company to hold their buy-to-let.  40% of these new purchases went into a company which was less than a year old, suggesting newer landlords still account for a sizable proportion of growth.

Rental growth 

Despite rental growth across Great Britain peaking over the summer months, an annual growth figure of 7.2% recorded in December 2021 means that rents were rising at around twice the rate recorded in December 2020. This compares to a peak of 8.7% in July 2021 and 7.9% in November 2021.

Aneisha Beveridge, head of research at Hamptons, said: “The way buy-to-let investors hold property has changed, with the impact of the tax changes made five years ago still shaping landlord buying behaviour today.  But despite record numbers of rental homes being held in companies, the growth in buy-to-let businesses has come from smaller landlords who made up most buy-to-let company owners pre-2016. Today, only 20% of buy-to-let businesses hold more than three mortgaged properties, a similar profile to landlords who hold homes in their personal name.

The number of new buy-to-let incorporations in 2021 is probably close to its peak, with fewer likely to be set up in 2022. This is partly a product of last years’ stamp duty holiday which served to slow the fall in new investor numbers.  Additionally, many investors who have wanted to make tax savings by transferring properties from a personal to a company name have had five years to do so.”

 


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