More UK landlords buying through a limited company than ever before due to tax change

The proportion of homes to rent in the UK owned by a company landlord reached 20% in the first quarter of 2017 as more by to let investors sought to offset tax change, the latest research suggest.

Ahead of changes to tax relief on mortgage payments for landlords which came into force at the beginning of April, it was believed that a number of them would set themselves up as a company to make their business more efficient.

The latest monthly lettings report from Countrywide plc suggests that did happen with a fifth of landlords buying property through a limited company. The data also shows that 27% of properties for rent in London are owned by a company landlord.

It means that the number owning property via a company has now reached the highest proportion since records began in 2010 and while numbers have been steadily rising since 2013 the biggest jump, 4%, was recorded in the first three months of 2017.

The report suggests that the changes to tax relief on rental properties announced in the 2015 Spring Budget is likely to be behind the rise as income tax relief on mortgage interest payments are being phased out over the next four years.

In some circumstances buying a property as a limited company can work out to be more tax efficient, but this is not the case for all buy to let landlords and depends in personal circumstances, income and the number of properties owned.

The research also found that the most and least expensive homes are likely to be owned by a company landlord. Over the last year, a quarter of homes let by a company landlord cost less than £500 per calendar month while 9% let for between £1,500 and £2,000 were owned by a company landlord compared to 6% owned by non-company landlords.

There has been a lot of talk that losing mortgage interest relief will prompt landlords to raise rents but the Countrywide report shows that rents are falling, with new lets down by 0.3% in March compared to a year ago, the second consecutive monthly fall.

The average rent of a new let in Great Britain fell to £928, some £3 less than the same period last year. The fall in rental growth was driven by London, the South West and Wales where rents fell by 0.4%, 0.2% and 6% respectively.

‘The number of rented homes owned through a company is up. The incoming tapering of mortgage tax relief is likely driving the increase. Companies are generally taxed more favourably, particularly with recent changes by Government to tax relief, so in many cases landlords can make cash savings by operating through a company rather than as an individual,’ said Johnny Morris, Research Director at Countrywide.

‘Rents fell again in March, mostly driven by falls in London. Stock growth continues to outpace demand in the capital, giving tenants more negotiating power, pushing down rents. In much of the rest of the UK rents continued to grow, although at a slower rate,’ he added.