As more landlords look to optimise their property investment strategies, one question comes up repeatedly: should you own your rental property through a limited company?
Recent figures show that over 401,000 buy-to-let companies have been registered in the UK – more than any other type of business structure*. With this growing trend, it’s worth exploring what landlords need to consider when deciding whether purchasing or transferring a property into a limited company is the right approach.
Why Some Landlords Choose a Limited Company Structure
Potential tax efficiencies are a key driver behind the decision to own property through a limited company.
- Mortgage interest relief: Limited companies can usually offset 100% of mortgage interest against rental income. In contrast, individual landlords are affected by Section 24 tax changes, which cap relief at a 20% tax credit.
- Tax efficiency on profits: Companies pay corporation tax on profits at either 19% or 25%, depending on earnings. Individual landlords who are higher or additional rate taxpayers could be taxed at 40% or 45%, making this structure potentially more appealing.
- Flexible income options: Company owners can choose to draw income via salary or dividends, sometimes in a more tax-efficient way than if receiving rent personally.
- Limited liability and succession planning: A limited company offers liability protection and makes it easier to transfer ownership by selling shares or bringing in new investors.
Considerations Before Setting Up a Limited Company
While there are advantages, there are also some challenges that come with using a limited company for property ownership.
- Mortgage finance limitations: It can be more difficult to secure buy-to-let mortgage finance via a company, with fewer lenders offering products in this space. Interest rates and fees may also be higher.
- Personal guarantees: Directors are often required to provide personal guarantees when borrowing through the company.
- Additional admin and costs: Running a limited company involves preparing and submitting annual accounts, maintaining statutory records, and possibly paying for professional accounting services.
Transferring Existing Properties into a Limited Company
Some landlords consider moving their personally held buy-to-let properties into a company structure. However, this comes with significant tax considerations.
- Stamp Duty Land Tax (SDLT): The company must pay SDLT on the property value when it’s transferred.
- Capital Gains Tax (CGT): The transfer is treated as a sale, so the individual may incur a CGT bill based on any gain in the property’s value since its purchase.
Due to these potential costs, it’s essential to crunch the numbers and understand whether the long-term benefits outweigh the upfront expenses.
Get Professional Advice
Before buying property through a limited company, or transferring an existing rental into one, seek expert guidance from a financial adviser or solicitor. While a limited company structure can offer benefits, it isn’t suitable for everyone, and the wrong setup can lead to unexpected tax liabilities or administrative burdens.
Although we don’t provide legal or financial advice, we are always available to help you with the practical aspects of letting and managing your property.
If you know a landlord considering this route, feel free to share this guide. For tailored lettings advice, get in touch with our team.
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