Record number of landlords opened property companies in 2023

The number of landlords setting up buy-to-let property companies continues to rise, according to new research.

Changes to buy-to-let mortgage relief, which started in 2017, have encouraged landlords to transfer ownership of their properties due to tax benefits.

Read on to find out where landlords are setting up companies, the impact of the controversial tax changes, and whether landlords using company ownership will continue to rise in 2024.

Record year for landlords setting up property companies

Analysis of Companies House data, carried out by estate agency Hamptons, shows that more buy-to-let companies were set up in 2023 than in any previous year.

A three per cent increase on the 2022 figure (48,520), 50,004 new buy-to-let companies were incorporated in the UK last year. This is despite a sharp fall in the number of homes bought by landlords in 2023.

The research shows that incorporating was particularly popular with smaller landlords last year, with a 22 per cent increase in the number of companies holding a single property.

In comparison, the number of companies holding more than 20 properties increased by just under four per cent.

Where are landlords setting up buy-to-let companies?

The biggest annual rise in new buy-to-let companies last year was recorded in Scotland at eight per cent.

This was followed by the North West (five per cent), Yorkshire and the Humber (five per cent), and the South East (four per cent).

The number of new limited companies dipped by two per cent in the South West and just under one per cent in the North East. Despite this, both regions saw the total number of homes owned in a corporate structure continue to rise.

In the North East, a record 58 per cent of limited company buy-to-lets were owned by landlords based in other parts of the UK.

How many property companies are in the UK?

There were 345,426 active buy-to-let companies in the UK at the start of 2024, up 12 per cent from 309,643 in January 2023.

UK buy-to-let companies hold a total of 615,077 properties, an 82 per cent increase from the end of 2016.

Of the 615,077 limited company buy-to-let properties, 458,838 (75 per cent) have a mortgage against them.

While the total number of outstanding buy-to-let mortgages fell three per cent over the last 12 months, mortgages on properties held in a limited company increased by 10 per cent during the same period.

According to Hamptons, this means that limited company landlords are more likely to have a mortgage than investors who own rental property in their personal name.

Will there be more buy-to-let companies set up in 2024?

Despite a surge in the number of new buy-to-let companies in 2023, the rate of growth fell compared to previous years.

The three per cent rise recorded between 2022 and 2023 is significantly lower than the 14 per cent rise between 2020 and 2021 and the 30 per cent rise between 2019 and 2020.

According to Aneisha Beveridge, Head of Research at Hamptons, landlords who incorporated in 2023 did so to shelter themselves from high interest rates.

“Despite last year’s slowing sales market, there was no let-up in landlords rushing to incorporate.

“The record number of companies set up to hold buy-to-let homes suggests a long-term commitment from landlords – particularly given the upfront costs associated with incorporating.

“Meanwhile the number of new landlords setting up shop has remained relatively muted,” she said.

The long-term impact of Section 24

The reason why so many landlords have set up property companies in recent years is because of controversial tax changes that started in 2017.

Previously, landlords could deduct 100 per cent of mortgage interest from rental income when paying tax.

However, the government gradually reduced buy-to-let mortgage interest tax relief, replacing it with a 20 per cent tax credit in 2020.

This means many landlords – particularly higher-rate taxpayers – can reduce their tax bill by starting a property company and paying corporation tax instead of income tax.

As a result, 68 per cent of current buy-to-let companies were set up between 2017 and 2023 when the tax changes were phased in.

Our 2023 Landlord Report found that over a third of landlords (36 per cent) still consider the reduction of buy-to-let mortgage tax relief as one of their greatest challenges, while 42 per cent said the rising cost of renting out a property is the single biggest threat to the rental market.

Read more: What is Section 24? A guide for landlords

What are the benefits of setting up a buy-to-let company?

Landlords who own properties individually have to pay tax on turnover, while landlords with a property company pay corporation tax on their profits.

The government’s restriction of buy-to-let tax relief means for many landlords it’s more profitable to move their properties into company ownership.

Some of the other benefits of incorporation include:

• inheritance tax, capital gains tax, and stamp duty won’t need to be paid if you transfer your properties to a limited company
• greater legal protection due to ‘limited liability’ (which means only the money you’ve put into the company is at risk)

Despite the advantages, there are downsides to consider such as increased costs and admin. That’s why you’ll need to weigh up the pros and cons carefully, getting professional advice when you need it.

How to set up a property company for your portfolio

If you’re thinking about transferring ownership of your property, read our guide to setting up a property company.

It includes tips on:

• how buy-to-let tax relief works
• corporate tax rates vs individual tax rates
• the key steps to setting up a property company

Are you considering starting a property company in 2024? Let us know in the comments below.

Useful guides for buy-to-let landlords

• How to do a landlord tax return
• The ultimate guide to building a property portfolio in the UK
• How can landlords get a buy-to-let remortgage?
• What does landlord insurance cover?

Photograph: Paul Maguire/stock.adobe.com