New research shows that an increasing number of landlords are turning to corporate structures in an effort to reduce tax liability and avoid stringent new rules on mortgage affordability.
The data reveals that:
- nearly 4 out of 5 (79%) of all buy-to-let (BTL) purchase applications were made via a corporate vehicle in Q3 2017;
- this is an increase of 6% since Q2 2017 and an increase of 58% (up from just 21%) prior to the tax relief changes being announced in the 2015 Budget statement;
- limited company transactions for purchases and remortgages made up 48% of BTL completions in Q3 by number of mortgages, and 47% by value of lending.
Statistics held by Companies House show that there was a spike in registrations for Special Purpose Vehicle (SPV) limited companies (with property related SIC codes) in 2016, which reflects the increase in the use of limited companies by landlords for their borrowing needs.
A spokesman from Mortgages for Business, the company who carried out the study, said: “There was, unsurprisingly, a spike in SPV registrations last year, but it looks like the numbers have been increasing for considerably longer than might be expected.
“Looking at historic registrations, numbers have been on the rise ever since 2008 which, I’m sure you can guess, was not a popular year to start a property company.
“That said, the 2015 Summer Budget has noticeably sped things up, with 2015 and 2016 showing the strongest growth in registrations in the sample, whether proportionally or in absolute terms. Over 20,000 new SPVs were registered in the year so far compared to circa 13,000 in 2014 – scaling up suggests a figure somewhere just shy of 35,000 by the end of the year, an increase of circa 35% over 2016.
“Landlords are turning to SPVs because of the benefits they bring in the form of tax efficiencies and softer affordability testing. Switching to corporate structures is not without risk, however, and we recommend all our clients take professional tax and finance advice before deciding how to proceed.”