The number of limited companies set up to hold buy-to-let property investments has surpassed 400,000, making it the most dominant small company type registered.
The latest lettings index released by Hamptons has revealed another hike in the number of buy-to-let landlords setting up a limited company through which to operate their rental property or properties.
While this used to be predominantly a measure taken by larger portfolio landlords, increasingly smaller landlords are also choosing to operate in this way in order to take advantage of certain tax advantages that could increase the profitability of their buy-to-lets.
According to Hamptons, Companies House has more registered buy-to-let companies than any other type of business – with almost four times as many landlords setting up companies than fast food takeaways or hairdressers in the latest figures from February.
This represents a surge of around 332% over the past nine years in the number of buy-to-let limited companies, with the total hitting 401,744 last month.
Dominant locations
With London being home to the greatest number of landlords in the country, it also has the greatest share of limited company buy-to-lets, with Companies House/Hamptons data showing that there are now 122,269 such companies registered. This represents a 30% share of all rental homes owned.
The South East comes next on the list with 50,453 companies registered for buy-to-lets (a 13% share), followed by the North West – a region that has seen a huge increase in interest from property investors in recent years – with 40,184 buy-to-let companies registered (a 10% share).
The location where a limited company set-up is the least popular for landlords is Northern Ireland, where just 5,036 buy-to-let limited companies are registered (a 1% share).
According to Hamptons, this location-led pattern is largely down to yields versus higher property prices, and how they may impact tax considerations. For example, lower yields and extremely high purchase prices in London “make the ability to offset mortgage interest particularly crucial”.
Further to this, many landlords in the North West may be established property investors with properties across the country, including the capital, making it more tax efficient to run their buy-to-lets in the region through a limited company.
Limited companies indicate long-term investment
There has been talk in the media of the fall of the ‘accidental landlord’ due to the fact that tax changes and higher interest rates have made the buy-to-let space less appealing for those who are simply letting out a property due to circumstance, such as having inherited one. More serious ‘business landlords’ and professional investors may therefore be moving in on the space, as indicated by the rise in limited companies for buy-to-let.
The report notes: “Despite the backdrop for the private rental sector, the rise of buy-to-let transfers into companies also suggests that these investors are in it for the long-run. Given the costs associated with setting up a limited company and moving a portfolio into that structure, these investors are unlikely intending to sell up soon.”
Some of the most notable benefits that draw people towards owning rental properties in a limited company rather than as an individual are linked to tax. This largely began when mortgage interest relief was phased out from 2016, which affected higher-rate taxpayers the most.
Properties owned through limited companies are treated differently from a tax perspective, which can save investors money – companies can deduct mortgage interest as a business expense before tax, while individuals can’t.
Hamptons adds: “The limited company is now the structure of choice for the next generation of investors too. We estimate that 70-75% of new buy-to-let purchases now go into a company structure, a figure that has been steadily growing.”
Higher interest rates is believed to have also exacerbated this push towards limited companies for buy-to-let, as landlords have increasingly sought ways to maintain the profitability of their investments.
According to the figures, a record 61,517 new limited company structures were set up for buy-to-lets in 2024, which is a huge 23% rise from the previous year, and brings the total number of buy-to-let companies to 680,000 in England and Wales.
