LONDON: A record number of buy-to-let firms were established in the UK last year as landlords sought to cut costs by shifting rentals into a corporate structure.
Over 50,000 limited buy-to-let companies were set up in 2023, beating the record of about 48,500 in the previous year, according to a report from broker Hamptons International.
While the total number of outstanding buy-to-let mortgages fell 3% last year, home loans held in a limited company –often seen as a more profitable way to let – rose 10% over the same period.
“The growth has been driven mostly by existing landlords moving properties into a corporate structure to shelter themselves from higher interest rates,” said Aneisha Beveridge, head of research at Hamptons.
“For as long as landlords continue rolling off cheap fixed-term mortgages onto rates which are twice or triple what they were paying, the number of homes being put into a corporate structure will remain high.
”For landlords whose properties are registered under a limited company, mortgage interest is treated as a business expense, meaning it’s possible to deduct interest costs before paying corporation tax. What’s more, buy-to-let investors choosing to run their homes through a limited company are not liable for capital gains tax.
These firms now own more than 615,000 properties in the UK, an 82% increase since the end of 2016 when tax changes made limited companies a more profitable way to let for some landlords. There was even more of an incentive last year, when a cycle of Bank of England hikes led to the sharpest series of interest rate rises in three decades.
Even so, the cost of transferring privately owned rental homes to a company is an expensive process, given mortgage-transfer costs and the taxes applicable when a property is shifted.
The expenses occurred in setting up a firm and running it csan also be high.Regardless, an eagerness to rein in costs saw the number of active limited buy-to-let companies rise to almost 350,000 at the start of this year, compared with just over 300,000 at the beginning of 2023. — Bloomberg
