Surge in Property Companies: Landlords Seek Tax Relief

Landlords are flocking to form companies to save tax, according to the latest data from Companies House.

From January to September, property investors set up 46,449 companies - a 22 per cent increase from the 37,814 formed in the same period last year.

Running a property business as a limited company allows investors to claim all mortgage interest payments as business expenses to set off against corporation tax instead of the 20 per cent tax credit allowed when trading as individuals.

The tax credit was phased in over several years from 2016. Some 74 per cent of the 382,007 listed property companies have incorporated since then.

Despite the surge in the number of companies, property companies hold only around 690,000 of the 4.6 million rental homes in England and Wales.

Long-term tax solution

An analysis of the Companies House data by property consultancy Hamptons reveals that 59 per cent of newly incorporated companies are in the south of England, where more landlords are higher-rate taxpayers.

The data also shows that 54% of new incorporations are by landlords owning at least three rental properties.

Hamptons points out that although setting up a company is expensive, especially when transferring property from personal to corporate ownership, landlords see incorporation as a long-term tax solution.

"With the government continually tinkering with personal tax rules, operating through a company has offered investors long-term certainty," said Aneisha Beveridge, head of research at Hamptons.

"Rumours of further tax increases are only fuelling the rise in incorporations, but any increase in personal taxes will only widen the gap between tax paid by landlords who own homes as individuals rather than through a company."

Number of buy-to-lets for sale doubles

Meanwhile, fears that Chancellor Rachel Reeves will punish landlords with higher capital gains and inheritance taxes have triggered a market exodus.

New data from estate agency consultants TwentyEA shows the number of homes for sale rented out in the past 36 months has doubled in a year.

In September 2023, 6.8 per cent of homes for sale were former rentals.

This year, the number has rocketed to 11.3 per cent of homes listed for sale.

The figures are even starker for London, where 47.2 per cent of homes for sale are former rentals, compared with 27.1 per cent a year ago.

Katy Billany, executive director of TwentyEA, said: "For some homeowners, financial duress brought about by the cost of fixed-rate mortgages will be forcing a sale based on unaffordability. As always, confidence and sentiment underpin the market, and while sales have increased since last year, many prospective buyers will still be holding back until after Labour's Budget."

Budget 2024 is on Wednesday, October 30.