Over the last few years, the number of landlords who have placed their buy-to-let properties in a company instead of holding them in their personal name has doubled. This has primarily been driven by the modifications done to Section 24, introduced way back in 2017. The rule prevents investors with properties in their personal names from claiming mortgage interest as an expense. In the UK, landlords with personal properties have to pay tax on turnover, whereas company landlords are taxed on profit. For landlords who pay higher taxes, moving their personal property into a company has become more profitable.

What The Buy-To-Let Stats Reveal

In the first quarter of 2022, investors picked up one in every ten properties sold across the country. Buy-to-let landlords purchased 42,980 homes valued at around £8.5bn across the country during the same period. They preferred investing in properties in high-yield areas to circumvent inflation and maximize profits.

Till March 2022, 50 percent of the highest-yielding properties of the country were bought by two-thirds of investors. This figure has jumped by 57 percent compared to purchases made a decade ago. A majority of London-based landlords also invested in buy-to-lets outside the capital this year for the same reason–higher yields. Statistics reveal that the total number of new buy-to-let incorporations in 2021 was the highest ever. Experts expect fewer investments in similar properties in 2022.

Major Reforms Expected As A New Government Takes Charge

However, things are expected to change as Michael Gove returns as Secretary of State for Levelling Up, Housing, and Communities. The MP from Surrey Heath has been commended for handling the cladding scandal. His return to the cabinet is expected to bring continuity and progress to the rental and leasehold reform sector.

The return of Michael Gove indicates that the government has plans to reform the rental market. UK property sector experts believe most landlords are ready to operate without the contentious Section 21. However, they want other critical proposals, such as reformed grounds for possession and on-court reforms, to be prioritized. Landlords are also pushing for a plan of action to tackle anti-social tenants. They want to scrap plans that would ruin the student housing market and ensure that genuine possession cases are handled quickly.

What’s Causing This Trend

The trend is clearly the outcome of the stamp duty holiday announced last year, which helped slow down the fall in new investor numbers. The new rule also allowed investors wanting to save money in taxes by transferring their personal property to a company name, by giving them a time frame of five years to do so. The total number of buy-to-let companies in 2021 was 269,300, clearly indicating that the pace of transfer of private property to companies has not eased. Smaller landlords are responsible for a significant portion of the growth in buy-to-let businesses. Larger institutions have a limited role to play.

Landlords Know They Must Deal With Tax Changes

With the corporation tax rate set to rise by six percent next April, limited company landlords may have to deal with a higher tax situation. However, that has not deterred.

landlords from transferring ownership of their properties to companies. Around 50,445 new buy-to-let companies were set up over a 12-month period ending September 2022. During the same period, 8092 buy-to-let companies were dissolved because of landlords selling properties. This shows a 25 percent rise in the previous 12 months. The corporation tax rate will increase next year. This inflated tax rate is expected to reduce investments in the number of buy-to-let enterprises next year as landlords look at all the options available to them.