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More landlords opt for incorporation

More and more landlords have been incorporating their buy-to-let businesses, international estate agency business has reported.

Although the peak may now be passed, over the last four years the number of UK landlords taking this route has doubled, said the firm. Some 47,400 new buy-to-let companies were incorporated in 2021 an increase of 14 per cent, less than the 30 per cent of 2020.

The shift to incorporation has predominantly been driven by the changes to the tax treatment of landlords that came into effect in 2017, said Hamptons.  Since then, investors with properties in their personal names have no longer been able to claim mortgage interest as an expense. 

‘While individual landlords are effectively taxed on turnover, company landlords are taxed on profit’, said the firm. ‘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(s) into a company’.

Growth in buy-to-let businesses, and companies, has come from smaller landlords rather than larger institutions that owned most buy-to-let companies prior to 2016, said Hamptons.

‘Today, only 20 per cent of buy-to-let businesses hold more than three mortgaged properties, a similar profile to landlords who hold homes in their personal name.

‘We estimate that around half of all new landlord purchases last year used a company to hold their buy-to-lets’.

But it is not all one-way traffic. ‘While the number of buy-to-let incorporations has continued to grow, around 15,200 companies closed their doors in 2021. which equates to around 6 per cent of all buy-to-let companies’.

The average life of a buy-to-let company was put at 5.8 years, a figure that has fallen steadily in recent years.