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Record Number of Limited Companies Set Up by Buy-to-Let Landlords

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    More Investors Incorporating Amid Tax Concerns

    According to new research from Hamptons, over 5,300 new buy-to-let limited companies were established in September – 28% more than in any previous September.

    A total of 46,449 companies have been established this year (January to September), a 23% increase compared to the same period last year. More companies have also been established this year so far than in the whole of 2021.

    Hamptons projects that, at the current rate, between 60,000 and 62,000 limited companies will have been established by the end of 2024, significantly more than last year’s 50,004.

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      Why Are More Landlords Setting Up Limited Companies?

      Hamptons reports that the main reason for this trend is the widening gap between personal and corporate tax rates.

      This uptick started accelerating in 2016 when changes to tax legislation started having a greater impact on higher-rate taxpayers. 74% of the current 382,007 rental property companies in Great Britain have been established since this year. Following these changes, landlords have been unable to offset their mortgage payments as a cost fully; instead, they receive a 20% tax credit, pushing up tax bills for higher-rate taxpayers.

      Interestingly, there appears to be some regional variation in the findings. Hamptons found that 59% of new limited companies were set up in the South of England, where property is typically more expensive. Higher interest rates have hit these regions hardest, and a larger proportion of households are higher-rate taxpayers.

      That said, only 42% of properties acquired by limited company landlords this year are in the South, suggesting that many Southern property investors are now looking at more northern regions for higher yields.

      This trend has been ongoing for a while as northern markets have been outperforming the South and offering more affordable properties in high-demand rental markets. RWinvest specialises in North West property, allowing investors to take advantage of these thriving property hotspots. Our flagship Liverpool development, The Gateway, is nearly completely sold out, with just a few apartments left, showing the popularity of northern developments among investors.

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      Should I Incorporate as a Landlord?

      For investors who are in the buy-to-let market for the long run and may be looking at expanding their portfolio, incorporating can offer many benefits. The primary advantage is longer-term certainty regarding tax legislation, as the government frequently changes personal tax rules. However, various expenses associated with setting up a company will determine whether this is the right decision for your investment. These include accountancy costs, stamp duty, and, potentially, capital gains tax.

      According to Hamptons, only larger landlords tended to choose the limited company route pre-2016, but growing tax advantages have attracted smaller investors in recent years. This year, 54% of new purchases have been made by companies making their first, second or third purchases. That said, incorporating is not a necessity for buy-to-let investors. It is worth noting that only about 15% of all rental homes owned by private landlords are held in corporate structures. The individual investor’s personal circumstances will determine whether establishing a limited company is worth it.

      Click on the link below to enquire about The Gateway, or look at our available properties page to explore more property investment options in the North.

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      Author

      Jessica Ferris

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      Jessica Ferris is a property writer at RWinvest, helping our readers stay ahead of property market trends with the latest news and statistics.

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