Buy-to-let businesses have become the most common type of company in the UK, with nearly four times as many as fast-food takeaways or hairdressers. New research from estate agent Hamptons reveals that more limited companies are now set up to hold rental properties than any other type of business.
Record growth in buy-to-let companies
The number of companies holding buy-to-let property surpassed 400,000 for the first time in February 2024, reaching 401,744 by the end of the month. This marks a significant shift in strategy among landlords, many of whom have transferred their properties from personal ownership into limited companies to reduce tax liabilities.
A decade ago, there were just 92,975 such companies, however, tax changes introduced in 2016 – which gradually withdrew full mortgage interest relief for landlords paying higher income tax rates – have led to a surge in landlords incorporating their property portfolios. Hamptons suggests that without these tax changes, most buy-to-let properties would have remained under personal ownership, with landlords declaring their rental income via self-assessment.
Tax changes drive landlords to incorporate
The sharp rise in buy-to-let company formations continues despite broader challenges in the rental market. Last year, UK Finance reported that the sector shrank for the first time in nearly 30 years as smaller landlords sold off properties due to rising mortgage costs.
Even so, 2024 saw a record 61,517 new buy-to-let companies registered – a 23% increase compared to the previous record set in 2023. Currently, around 680,000 rental properties in England and Wales are held within a limited company structure, with an additional 70,000 to 100,000 being added each year. However, not all of these represent new rental properties; some are existing homes transferred from personal ownership to a corporate entity controlled by the same landlord.
Impact on tenants and rental prices
While landlords adapt to tax changes, tenants have faced years of steep rent increases. However, there are signs that the market may be stabilising. Hamptons report that the average rent for a newly let property in Britain rose by just 1% to £1,355 in the year to February – its slowest growth rate since September 2020.
Rents increased by 5.6% for tenants renewing existing leases, reaching an average of £1,262 per month. Meanwhile, London renters saw some relief, as newly agreed rents fell by 2.8%. Inner London experienced an even steeper decline, with rents dropping 5.1% over the past 12 months – now sitting 9.4% below their peak last year.
Future outlook for buy-to-let investors
Due to policy changes and market conditions, the rapid growth in buy-to-let incorporations may slow in the coming years. In particular, the increase in the stamp duty surcharge from 3% to 5% could deter some investors from expanding their portfolios.
At the same time, falling mortgage rates may encourage more landlords to keep properties in their names rather than setting up a company. However, for many landlords, the tax advantages of incorporation remain a powerful incentive, meaning buy-to-let businesses are likely to remain a dominant force in the UK market.
Talk to us about your property.