Buy to Let investment through a Limited Company

There are many considerations to setting up a Limited Company for Buy To Let property portfolios.

Speak to one of our mortgage brokers to find out if this would be beneficial to you and your future plans.

buy to let - using a limited company

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

An increasing number of buy-to let property investors now purchase properties through Limited Companies rather than having their own names. This allows them to offset all mortgage interest against rental income before paying tax, which means that whilst individual landlords are effectively taxed on turnover; company ones will be taxed only when they make a profit!

Advantages

Dividend Allowance – All directors receiving dividends receive the first £2000 tax-free.

The dividend allowance in the UK for the 2020/21 tax year (6th April 2020 to 5th April 2021) is £2,000. This allowance is in addition to your personal allowance.

No income tax when reinvesting – If profit is retained and reinvested, there will be no income tax on the profit allowing more cash to re-invest.

Personal funds can be withdrawn – Any advances made into the limited company (ie the mortgage deposit) can be withdrawn by way of a directors loan.2

Disadvantages

Corporation Tax – is payable on trading profits = 19% (2021-22 tax year).

No Capital Gains Tax allowance – Individuals receive £12,300 CGT allowance (2021/22) when selling a property. This is not applicable to limited companies

Additional accountants costs – Accountants have additional work to carry out for Limited companies: Company Tax and Corporation Tac calculations for HMRC, filing at Companies House, legal fees and annual audits if applicable.

Higher mortgage rates – Most lenders charge a higher rate of interest and fees for Limited Companies compared to individual Buy to Let mortgages.

Reduced choice of lenders – Only a few lenders offer Buy to Let mortgages to Limited Companies.

Key facts

The limited company must be used for the sole purpose of residential investment property and no other business. The Limited company must be registered at Companies House and the appropriate SIC code must be in place.

  • 68100 buying and selling of own real estate
  • 68209 Other letting and operating of own or leased real estate
  • 68320 management of real estate on a fee or contract basis
  • 68201 renting and operating of housing association real estate

The limited company must be registered in England & Wales and will be accepted as soon as its fully incorporated.

All directors and shareholders will be underwritten. The primary director must meet the mortgage criteria.

Personal guarantees may be sought from all directors and shareholders, and therefore will be individually and collectively liable for the mortgage.

Credit referencing will be obtained for the Limited Company and all directors and shareholders

Should you transfer to a limited company?

This really depends on your future plans. You would be liable to pay Capital Gains Tax and Stamp Duty (SDLT) on selling the property to the Limited Company. If you plan to expand your portfolio, the benefits of doing so via a Limited Company structure may be worth paying these one off costs.

I already have a Limited Company

If your Limited Company is trading in other industries than real estate, you would need to setup a separate Limited Company with the appropriate SIC codes applied.

If you want to change a SIC code from one previously entered, you must file an annual return. (either resubmit, an early return or wait until the next return)

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

Get moving with Bright Money