There has been a surge in the number of limited companies being set up to hold buy-to-let property ahead of potential capital gains tax rises.
As many as 5,312 new limited companies were incorporated by landlords in September – a 28% rise on the same month in 2023, according to Hamptons’ analysis of Companies House data.
It is the third highest monthly figure on record following the 5,854 set up in April 2024 and 5,442 in February 2024.
Hamptons reported there had been a record number of new incorporations so far this year with a total of 46,449 companies set up between January and September 2024. This is a 23% increase on the same period last year and means more companies have been set up so far this year than during the whole of 2021.
New landlords have been increasingly using the limited company structure to manage the finances for their buy-to-let businesses for some years.
It comes after landlords became unable to fully claim mortgage interest as a cost. Many existing investors are also shifting their buy-to-lets into limited companies to reduce their tax burden.
Indeed, properties sold by companies are not subject to Capital Gains Tax (CGT) whereas landlords operating as individuals would be liable for this tax when they sell the asset.
And the spike in limited company landlords coincides with reports the Chancellor Rachel Reeves is set to raise the rate of CGT at her inaugural Budget on 30 October.
Aneisha Beveridge, head of research at Hamptons, said: “While landlord purchase numbers are well down on pre-pandemic levels, there’s been no sign of a slowdown in the number of companies being set up to put them in. Most new purchases are now made in a company structure.
“However, there’s also been a significant rise in the number of landlords moving homes they own in their personal name into a company to shelter from an increasingly aggressive tax environment.
“While the benefit of being able to offset mortgage payments before being taxed has been the primary driver for new incorporations over the last few years, more recently rumours of potential increases to Capital Gains Tax or Inheritance Tax are further fuelling the rise.
“An increase in personal tax rates will only widen the gap between the tax paid by landlords who own homes in their own name or a company name further.”
The analysis suggests, by the end of October 2024, it’s likely more limited companies will have been set up to hold buy-to-let property than in the whole of 2023.
It means by the end of 2024, between 60,000 and 62,000 limited companies will have been created, exceeding last year’s total of 50,004.
