New figures show there are over 401,000 buy-to-let companies* in the UK – more than any other type of business. Let’s look at what landlords need to know about owning their property through a limited company.
Reasons to set up a limited company
Possible tax savings are the main reason some landlords opt to own property via a limited company.
- Limited companies may reclaim the full amount of mortgage interest paid as an expense against tax. In comparison, a tax rule known as Section 24 means individual landlords may not reclaim interest paid beyond a 20% tax credit.
- Owners of limited companies may be able to withdraw money from the company more tax-efficiently than individuals.
- Limited companies pay lower rates of corporation tax on their profits (either 19% or 25%). Landlords who are higher or additional rate income taxpayers pay 40% and 45% respectively.
- Other possible advantages include the protection of limited liability, and the ability to bring investors into the company and transfer property to others by selling or transferring the limited company.
Issues to consider
- It may be more difficult to raise mortgage finance via a limited company. Fewer lenders are active in this market, and interest rates and fees may be higher.
- Directors may be required to give a personal guarantee for their company’s borrowing.
- Setting up and running a limited company includes extra record-keeping and administrative expenses. Limited companies must prepare and file annual accounts with Companies House.
Moving buy to lets into a limited company
If you are considering transferring existing properties into a limited company, be aware that there will be Stamp Duty to pay on the purchase. There may also be a personal Capital Gains Tax liability on the sale.
Taking further advice
It is essential to take expert advice from a lawyer and/or a financial adviser before buying property through a limited company.
In some cases, owning property through a limited company may be less advantageous, not more.
While we can’t give financial or legal advice, if we can help with any other aspects of letting or managing your property, please do not hesitate to contact us.
If you know a landlord who might find this article useful, please share it with them.
This article is only a general guide and does not constitute financial advice.
* Source: Companies House data, analysed by Hamptons.