There has been a sharp increase in the number of limited companies being formed to hold properties for rental, in anticipation of possible capital gains tax increases.
A whopping 5,312 new limited companies were formed by landlords in September – a 28% increase on the same month in 2023, according to Hamptons analysis of Companies House data.
It is the third highest monthly figure ever measured, after the 5,854 in April 2024 and the 5,442 in February 2024.
Hamptons reported that a record number of new businesses have been created so far this year, with a total of 46,449 businesses established between January and September 2024. This is a 23% increase on the same period last year and means more businesses have been established. this year far more than throughout 2021.
New landlords are increasingly using the public limited company structure to manage the finances for their buy-to-let activities over several years.
It comes after landlords were no longer able to claim mortgage interest in full as costs. Many existing investors are also shifting their buy-to-let activities to limited companies to reduce their tax burden.
Indeed, properties sold by companies are not subject to capital gains tax (CGT), while landlords operating as individuals would be liable for this tax when they sell the asset.
And the spike in the number of corporate landlords coincides with reports that Chancellor Rachel Reeves plans to increase the CGT rate at her inaugural Budget on October 30.
Aneisha Beveridge, head of research at Hamptons, said: “While the number of purchases made by landlords is well below pre-pandemic levels, there is no sign of a slowdown in the number of companies being set up to deploy them. Most new purchases are being made now. created in a corporate structure.
“However, there has also been a significant increase in the number of landlords moving their homes into a company in their personal names to protect themselves from an increasingly aggressive tax environment.
“While the benefit of being able to offset mortgage payments before they are taxed has been the main driver for new formations in recent years, rumors of possible increases in capital gains tax or inheritance tax have further fueled the increase in recent times.
“An increase in personal tax rates will only widen the tax gap paid by landlords who own homes in their own name or in the name of a company.”
The analysis shows that by the end of October 2024, there are likely to be more limited companies set up to own properties for rent than in all of 2023.
It means that between 60,000 and 62,000 limited liability companies will have been established by the end of 2024, surpassing last year’s total of 50,004.