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Surge in Buy-to-Let Company Formations Amid Tax Challenges

Published by Chirag
Published Date: January 18, 2024

In light of a noticeable downturn in individual property acquisitions by landlords throughout the year 2023, a substantial and noteworthy surge emerged in the establishment of limited companies specifically dedicated to the management and operation of buy-to-let properties.

This shift in strategy reflects a dynamic response within the real estate landscape, signalling a strategic recalibration by property investors facing challenges in the traditional buy-to-let sector.

Regional Dynamics and Buy-to-Let Company Formation Trends

As the property market navigated contrasting patterns in 2023, experts reported a record-breaking 50,004 new limited buy-to-let companies established across the UK, marking a three percent increase from the 2022 record.

The year unfolded in two halves, with the first witnessing a dip in new incorporations post the mini-budget’s implications.

However, the latter half experienced a resurgence, especially driven by investors grappling with heightened mortgage rates.

Buy-to-Let

The regional landscape revealed diverse dynamics, with a leading region recording an 8.4 percent year-on-year increase in new company formations.

This surge is attributed to the contrasting tax rates between individual landlords and limited companies, making the latter a financially appealing option.

In another region, a noteworthy trend emerged, with 58 percent of limited company buy-to-lets held by companies set up outside the region.

This geographical preference aligns with a broader trend. As of the beginning of 2024, the total count of active limited companies for holding buy-to-let properties in the UK reached 345,426, reflecting an 11.6 percent increase from the count recorded at the outset of 2023.

Strategic Response to Regulatory Changes and Financial Landscape

Approximately 68 percent of these active companies were established between 2017 and 2023, coinciding with phased tax changes. This indicates a strategic response by landlords to evolving regulatory landscapes.

The total properties held by these companies surged by 82 percent from the end of 2016, with approximately 75 percent having associated mortgages.

Despite a three percent decrease in total buy-to-let mortgages, limited company mortgages increased by 10 percent in the past 12 months.

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