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The number of company-owned homes has hit the highest level since Hamptons International’s records began in 2010.

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  • One in five properties is now let by a company rather than an individual as landlords look for the most tax-efficient way to hold their investments.

    Around 18% of buy-to-let homes are owned by companies, more than double the proportion in 2015 and the highest level since Hamptons International’s records began in 2010.

    The number of company-owned properties has been steadily increasing since 2015, when the then-Chancellor George Osborne announced mortgage interest tax relief would be phased out.

     

    Why is this happening?

    Mortgage interest tax relief enables landlords to deduct the cost of interest on their mortgage from profits made on their buy-to-let property, reducing the amount of tax they pay.

    But since April 2017, the tax break is being gradually phased out.

    Individual landlords can currently offset only 50% of their mortgage interest, and by April 2020 they will not be able to claim any mortgage interest tax relief at all.

    But companies can continue to offset mortgage interest costs from profits.

    Profits made on rental properties held in a company structure are also liable for corporation tax, which is charged at 19%, half the level of the 40% paid by higher rate tax payers.

    Aneisha Beveridge, analyst at Hamptons International, said: “Companies are generally taxed more favourably, so in many cases, landlords can make cash savings by operating through a company rather than as an individual.”

    Who does it affect?

    While landlords may be able to save tax by, it is not a decision to be taken lightly.

    Companies face additional outgoings, such as accountancy costs associated with the need to file annual accounts.

    Investors will also have to pay capital gains tax and stamp duty on any properties they currently own which are transferred to a company, as this counts as a change in ownership, while they will also need to remortgage.

    But the trend is good news for tenants, as it tends to be cheaper to let a home from a company landlord than from an individual.

    More than a third of properties let by a company landlord cost less than £500 per calendar month to let, compared with just 19% of homes let by individuals.

    Above: three-bedroom barn conversion to rent in Malmesbury, Wiltshire

    What’s the background?

    The rate at which rents are rising showed signs of slowing in June, increasing by just 0.7% year-on-year, the first time annual hikes have fallen below 1% for seven months.

    The jump left the average cost of renting a home in Great Britain at £956 per month.

    But the headline figure masked considerable regional variation, with typical rents soaring by 4.1% during the past 12 months in Wales, while they rose by 2.3% in the east and 2.2% in the Midlands.

    At the other end of the scale, rents fell by 0.5% in outer London, and they were down 0.4% and 0.3% in Greater London and central London respectively.

    Despite the falls, central London remains the most expensive place in which to be a tenant with average rents of £2,596 per month, followed by Greater London at £1,666.

    Letting a home is cheapest in the north at £628 a month and Scotland at £639.

    Top 3 takeaways

    • One in five properties is now let by a company rather than an individual
    • The figure is more than double the proportion in 2015 and the highest level since records began in 2010
    • The number of company-owned properties has been steadily increasing since 2015 when the phasing out of mortgage interest tax relief was announced

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