Half of all buy-to-let property purchases are now bought through a limited company as increasing numbers of landlords seek to avoid paying the mounting tax bills levied on those who buy as individuals.

Last year 41,700 new buy-to-let limited companies were formed, an increase of 23% on 2019, according to research by estate agency Hamptons.

“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, says Aneisha Beveridge, its research chief.

It is no co-incidence that the ramping up in limited company registrations by landlords has accelerated in tandem with two key tax increases.

These are the ‘Section 24’ changes that, since being introduced in 2017, have gradually reduced the amount of income tax relief landlords receive for residential property mortgage interest costs, which are now restricted to the basic rate of tax. 

Stamp duty

Also, since April 1st, 2016 landlords have paid an additional 3% stamp duty on purchases of buy-to-let properties, although the tax also covers second and holiday homes.

This has had a predictable result; more limited companies have been set up by landlords over the past four years than over the past 50 years.

At the end of last year some 228,743 buy-to-let companies were registered at Companies House. This is a record, making buy-to-let firms the second most common type of new company after online shopping firms.

The trend is most obvious in London and the South of England, where properties are most expensive and therefore require mortgages – accounting for half of all buy-toi-0let limited company registrations.

“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,” says Beveridge (pictured).

“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.”

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