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Setting up a Buy To Let Limited Company

We came across some interesting stats this month, which showed that in 2020 over 47,000 landlords set up limited companies in the UK. Over the past few years, there has been an increase in the proportion of buy-to-let purchases being made as limited companies rather than personal landlord's name.

Benefits of investing through a Limited Company

One of the main reasons landlords chose to set up a Limited Company is that they can reduce their tax liabilities. In the 2020 budget, there were further changes to the tax relief available to buy-to-let landlords; this resulted in more landlords moving to set up incorporated businesses as these allowed more opportunities for tax relief.

The table below gives a comparison of tax benefits based on a rental property of £250,000.

The property has a £187,500 (75% loan-to-value) mortgage generating £12,000 rent a year. The calculations assume an interest-only mortgage at a rate of 2.5% for individuals and 3.5% for the company.

 

Limited Company

Basic rate taxpayer (20%)

Higher rate taxpayer (40%)

Property

£250,000

£250,000

£250,000

Annual rent

£12,000

£12,000

£12,000

Mortgage interest

£6,563

£4,688

£4,688

Gross profit

£5,438

£7,313

£7,313

Tax due

£1,033

£1,463

£3,863

Net profit

£4,405

£5,850

£3,450

Different Limited Company Structures:

There are two types of company structures that you can set up:

Special Purpose Vehicles (SPVs) – you need to register with Companies House and can have single or multiple properties. This is a simple company structure, and mortgage providers are usually willing to lend to this type of company. This includes lending to newly established SPV’s with no accounting history and existing SPV’s with a financial track record.

Trading Limited Company - These companies often have other income streams and business channels and are often viewed as having a higher risk element.  Therefore, the number of mortgage providers to choose from is significantly reduced when selecting a mortgage.

Other considerations of moving to a Limited Company:

Before you decide to move to a Limited Company structure, it is best to get advice from your accountant as you need to look at your circumstances and whether the change will help you save on your tax bill in the long-term.

Moving a property to a company can be an expensive process, plus you will need to spend more on accountancy and legal fees, as well as extra on administration.

You cannot utilise a personal Capital Gains Tax allowance when disposing of a property purchased through a limited company as CGT is a personal rather than a company allowance.  Instead, the limited company would be subject to Corporation Tax on any capital appreciation profits achieved when the property is sold. 

We hope you found this article useful; it gives an overview to help you consider the pros and cons of trading as a Limited Company. If you would like any more information, then please do contact us by calling 0115 704 3163 (Nottingham) or 01623 277115 (Mansfield). Alternatively, you can email us via our contact us page – click here.

 

 

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