Landlords Embrace Limited Companies: 50,000 Set-Up In 2023

Image credits: Maria Ziegler / Unsplash

The UK's buy-to-let investment landscape is being reshaped, particularly for smaller landlords. The catalyst? The 2016 tax change that saw personal landlords lose the ability to offset their mortgage interest against tax before payment. Instead, a 20% tax credit was introduced. This is leading to a wave of landlords transferring their properties into limited companies, where they could still fully offset costs before tax.

In 2023, Last year, a record 50,004 limited buy-to-let companies were set up across the UK. Even as the total number of homes bought by landlords decreased, the formation of limited companies for holding buy-to-let properties continued to rise. By the start of 2024, the UK had 345,426 active limited companies for buy-to-let property, an 11.6% increase from 2023.

These companies collectively own 615,077 properties across England & Wales, an 82% increase since the end of 2016. Interestingly, 75% of these properties have a mortgage charge against them, suggesting limited company landlords are more likely to have a mortgage than those owning buy-to-let property personally.

The most significant growth in buy-to-let incorporations over the last year has come from smaller landlords. There was a 21.9% increase in the number of homes held in companies with a single property, indicating a long-term commitment from landlords, despite the upfront costs of setting up a new company.

Scotland saw the largest increase in new companies, reflecting the more significant difference in tax rates paid by individual landlords and limited companies, making incorporation more advantageous.

As landlords continue to transition from cheap fixed-term mortgages to higher rates, in the long term, the trend of incorporating homes into corporate structures is expected to persist. The current tax regime could potentially shift half of all rental homes into a limited company structure, potentially reducing the presence of landlords who own buy-to-lets in their personal name.