Last year there were a total of 41,700 buy-to-let incorporations, an increase of 23% on 2019. The numbers have more than doubled since 2016, rising 128%, when tax changes for landlords were introduced.

In 2016, a 3% investor stamp duty surcharge came into force and the proportion of mortgage interest deductible from tax on buy-to-lets held in personal names began to be phased out. As a result, investors have changed the way in which they purchase properties, with increasing numbers shifting towards limited companies to reap further tax benefits.

Between the beginning of 2016 and the end of 2020 more companies were set up to hold buy-to-let properties than in the preceding 50 years combined. Companies set up to hold buy-to-let properties were the second most common company founded during 2020, with companies selling goods online or by mail order in first place. This means that at the end of 2020 there were a total of 228,743 buy-to-let companies up and running, an all-time record.

Southern-based landlords have been most likely to incorporate. Given the high cost of property, generally landlords based in southern England are more likely to be mortgaged which means that in cash terms their mortgage interest bill is likely to be higher. Therefore the benefits of incorporating a buy-to-let portfolio into a company are likely to be bigger.

More than a third (34%) of all companies set up to hold buy-to-let properties in 2020 were in London. Together, London and the South East accounted for almost half (47%) of all incorporations.

The tax benefits of holding property in a company derive from the ability of landlords to offset 100% of mortgage interest against profits, while those holding a property in their own name can offset just 20%.

This means that someone who owns a £250,000 property with a 75% LTV mortgage generating £1,000 a month in rent in a company will pay around £1,033 per year in tax. While a lower rate taxpayer owning the same property in their own name would pay 42% more or £1,463 each year. And a higher rate taxpayer would pay 274% more or £3,863.

But whilst those landlords holding their property in a company can offset more costs against their rental income, mortgage interest rates tend to be higher. This means that setting up a company to hold buy-to-let property tends to benefit higher-income taxpayers, or those with multiple buy-to-let properties.

The rate of rental growth accelerated sharply in December. Over the last three months, annual rental growth rose from 1.4% in October to 3.0% in November and to 4.1% in December. This is the fastest rate of rental growth recorded in more than four and a half years since July 2016.

Once again, all nine regions in England saw rents rise during December, with rental growth also turning positive in Wales. Rents in London began to rise in November for the first time since the start of the pandemic, following eight months of falls. And December saw growth jump from 0.3% to 1.6% in the capital.

However, rents in Inner London remain well down on last year, falling 11.5% between December 2019 and December 2020. This is a slightly smaller decrease than the 12.7% year-on-year fall recorded in November.

Aneisha Beveridge, head of research at Hamptons, said: “Despite growth of the private rented sector slowing in recent years, an increasing proportion of buy-to-let purchases are now being held in limited companies. We estimate that around half of all rental properties bought today are being put into a company, up from close to one-in-five during 2016. While most of this growth has been driven by larger landlords, smaller landlords, particularly those who are higher rate taxpayers, have also reaped the tax saving benefits from incorporating.

“As the company buy-to-let market has matured, more mortgage lenders have entered the space. Back in 2016 there were just a handful of lenders who offered company buy-to-let mortgages, often at a greater premium than today. But with more high street names entering the limited company space in recent years, competition has driven down interest rates to within a percentage point of similar products designed for landlords purchasing in their own name.

“December marked the first time since the onset of the pandemic that prospective tenant numbers surpassed 2019 levels. At the same time, the number of rental homes on the market fell by double-digit percentages in every English region outside London. This has driven rental growth up significantly over the last three months to a point where rents are rising faster than house price growth in almost every region.”