Is a limited company buy to let the only way forward for property investors


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If you’re reading this and considering buying a buy to let property in a limited company, you might be asking yourself if you should be going down that route. 

Or maybe you’ve already decided on using a limited company.

Whatever your situation is, here’s some things we think you should consider.

How limited company buy to lets work

For property investors, it's common for the mortgage to be taken out in your personal name.  But when you invest as a limited company, the mortgage is taken out in the company's name. 

So, when you invest in properties through a limited company, the company owns the properties.

You can apply for a mortgage before your limited company starts trading, but it must be registered before the mortgage begins.

One way to do this is by setting up an special-purpose vehicle (SPV) limited company which is technically a company set up in your name or that of the address of the property your purchasing.

You pay your deposit into the company, this is then used, along with the buy to let mortgage to purchase the property.

Buy to let and your personal finances

When you're applying for buy-to-let mortgages, salary and growth potential aren't as important as actual earned income from rental properties. This is often a minimum income threshold (usually about £25,000) that lenders require. Instead, they're much more focused on the amount of rental income you stand to make after accounting for your mortgage payments.

If you buy through a limited company, the mortgage lender may also require personal guarantees from the directors of the company. This protects the lender in case of problems and ensures against massive losses in case you default on the mortgage.

Is limited company buy to let the cheapest way to buy?

A limited company is like a third person and adds to the process of buying and arranging the buy to let mortgage. Despite their low cost to set-up, there are often associated costs incurred when buying property through a limited company.

For example, the legal and administration fees associated with the purchase and arranging a buy to let mortgage will be higher than if you did it in your own name.

What are the potential tax advantages of a limited company buy to let

You don’t pay Income Tax on Rental Income

If you rent out property as a limited company then you don't pay Income Tax on the rental income you receive. This is because the taxman sees the rental income revenue for your company and instead you pay corporation tax on your net profit.  If or when you take any dividends you may then need to pay tax on those dividends.

However, you do not pay tax on any dividend income that falls within your Personal Allowance (the amount of income you can earn each year without paying tax). You also get a dividend allowance each year. You only pay tax on any dividend income above the dividend allowance (currently £2,000 for the year).

You can deduct certain expenses from the rental income

As with any business certain costs associated with running your buy to let limited company are deductible from any the income you receive. There are some expenses that you cannot deduct as a private buy to let owner however, there is more flexibility as a limited company buy to let.

Buy to let limited companies are not eligible for capital gains tax allowances

When it comes to selling your property, you need to be aware that companies do not get a capital gains allowance as individuals do. Instead, you will pay corporation tax on any profits that result from the disposal.

We strongly urge anyone looking at investing in buy to lets to speak to a qualified accountant or a tax professional to get the advice suited for their circumstances.

Your future buy to let property portfolio plans

A limited company buy to let does offer further advantages when it comes to tax planning, it can help you expend your portfolio faster and provide options for capital gains, stamp duty and inheritance tax planning.

Expanding your buy to let portfolio

If you sell a property in a limited company and retain the profits in the company, you will not make a capital gain. Instead this will be classed as profit, and you will pay corporation tax instead. This can help you increase your portfolio faster than if you were a private landlord, but it requires careful tax planning with a professional.

Bear in mind that once you own four or more properties, in most cases, you will need to fulfil additional criteria set by lenders before any further your buy to let mortgage is approved on additional properties.

Selling a buy to let property in a limited company

Once you have your first property in a limited company buy to let structure you can use this buy to let limited company to buy further properties. Some lenders may require you to have separate buy to let limited companies for each property.

If your limited company has only one property in it, you may be able to sell the company instead of the property. As there is no transfer of ownership, the purchaser may not have to pay stamp duty when compared to undertaking the same transaction privately. This may also help with capital gains and inheritance tax planning.

Are you ready for all the associated admin and potential costs of a limited company buy to let?

Limited company buy to let mortgage interest rates my be higher

Compared to a private buy to let mortgage, lenders often charge limited company buy to lets a higher interest rate. They may also charge higher fee’s for booking the mortgage.

You will have additional legal obligations to fulfil

All companies in the UK have legal obligations to fulfil, limited company buy to lets are no different. You need to be prepared for the additional admin and potential extra costs involved:

  • You need to prepare and file accounts every year
  • You will need to file a company return every year
  • Corporation tax will need to be paid
  • There may be additional legal fees you need pay
  • In some circumstances you may need have your company accounts audited
  • Your accountant may charge you additional fees compare to private buy to let

Limited company buy to lets aren’t for everyone. You should seek advice from a qualified accountant or tax professional before you make the leap. 

Which ever way you choose for your buy to let we are here to help you

Once you do decide whether you want a limited company buy to let or private buy to let we’re here to support you through the whole process. It makes sense to talk to a qualified mortgage broker. We can find the mortgage product that suits your circumstances best. 

You can book an appointment or request a call back from the buttons below.

Your property may be repossessed if you do not keep up repayments on your mortgage.  Not all buy to let mortgages are regulated by the Financial Conduct Authority

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