Wealth Management News

Buy to let property businesses are booming

The buy-to-let (BTL) property market has been in flux over the last few years as the attraction of strong returns competes against new rules and taxes on landlords and investors.

Nevertheless, many people see it as an effective way to support their income or fund their retirement, especially where they can formalise their portfolio within a limited company.

Once seen as the preserve of the ‘well to do’ with considerable disposable income, or access to large mortgages, more and more people see it as a sound financial investment for their future.

It should come as no surprise then that there has been another boom recently in BTL, with a new survey showing that over the last four years the number of landlords who have incorporated their properties into a limited company, rather than holding them personally, has doubled.

In total, there were 47,400 new buy-to-let companies incorporated in 2021 across the UK, according to Companies House data, the highest number on record.

However, the research also shows a substantial increase in the number of BTL businesses failing in the same period.

The rate of growth in new incorporations did, however, fall compared to previous years with a 14 per cent increase recorded between 2020 and 2021, down from a 30 per cent increase recorded between 2019 and 2020.

While individual landlords are effectively taxed on turnover, company landlords are taxed on profit.

This has meant that for some landlords – particularly those who are higher rate taxpayers – it has become more tax-efficient to move their buy-to-let portfolio into a company.

The research, undertaken by property letting firm Hamptons, also shows that more than 15,200 companies closed, around six per cent of the market.

In fact, since the start of the pandemic almost two years ago, some 25,100 such firms have closed for good.

Hamptons’ research suggests it’s likely that the number of new BTL incorporations in 2021 is probably close to its peak, with fewer expected to be set up in 2022.

This is partly a product of last years’ stamp duty holiday, which served to slow the fall in new investor numbers.

Additionally, many investors have wanted to make tax savings by transferring properties to a company – taking advantage of the savings on offer.

The number of BTL companies up and running in the UK passed through the 200,000 mark as the country emerged from the first lockdown, but by 2021 this figure rose to a new total of 269,300.

Of these companies, 61 per cent have been set up since the withdrawal of mortgage interest relief, which has been tapered down since April 2017.

Hamptons estimates that around half of all new landlord purchases last year used a company to hold their BTL, while 40 per cent of these new purchases went into a company that was less than a year old.

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