Is it worth setting up a company for buy to let? Or should a landlord buy in their personal name?

Over the last few years there have been lots of tax changes affecting buy-to-let ownership including restrictions on mortgage relief and changes to the wear and tear allowance.  These have negatively affected many landlords’ incomes, prompting owners of rental properties to consider whether it would be more tax efficient to incorporate – ie set up a limited company to own their buy-to-let properties.

Last year 30,000 properties were bought through companies, a 20% increase over the previous year (according to UK Companies House data for all active companies registered in England and Wales as of June 2019).

There are many benefits for landlords who choose to do this

  • Greater tax efficiencies
  • Importantly, the ability to avoid Stamp Duty Land Tax (SDLT) when you come to sell if the investor buys the company (which owns the property) from you – this saving is significant and will be a BIG plus in encouraging investors to buy your property over others available. Some sellers even agree to split the saving with the buyer so end up getting even more profit!
  • Limited personal liability
  • Improved Inheritance Tax planning
  • Free access to developed mortgage markets

Naturally each investor’s circumstances vary, each investor’s portfolio is different and each will have to make their own calculations to determine whether this is the right choice for them.

Investors must seek professional advice before making a decision but as an initial guide, we’ve put together an outline of some of the key points to consider.

The advantages of buying a Buy to Let property in a company

Mortgage interest

Investors can offset their FULL mortgage interest against the rental income.  This is not possible if a property is owned in an individual’s personal name as it has recently been replaced by a basic rate tax credit.

In many cases, particularly those investors who are in the higher rate tax bracket, buying in a company significantly increases profit margins and income.

Receiving income from property more efficiently

Once corporation tax has been paid on the profits, non-UK resident shareholders can take the money out of the company via dividend income, with ZERO income tax payable.

For UK residents, whilst income tax is applied to dividend income, the use of a shareholder loan creates a number of benefits, one of which is the ability to withdraw funds tax free.

Reduced Capital Gains Tax

When selling the property, there are two options available.  First, shares in the company can be sold.  Alternatively, the property can be sold out of the company, in the normal way as you would if it were owned in a personal name.

When selling the company, Capital Gains Tax is reduced to 10% and 20% (subject to the investor’s tax bracket) from 18% or 28%.

Another huge benefit is that by selling shares in the company, the buyer pays ZERO SDLT (Stamp Duty Land Tax), which is a significant saving.  This allows for either an increase in the sale price or a price advantage in the marketplace.

There are other advantages too. 

Reducing an investor’s personal liability

Buying in a company reduces the personal liability of shareholders.  The company created has its own legal identity and its assets and liabilities sit with the company rather than the individual. So if anything went wrong there would be no liability back on the shareholders.

Estate and Inheritance Tax planning

The limited company structure allows more flexibility to manage taxes.  Of course, Inheritance Tax cannot be avoided but in many cases it can be managed efficiently.

Other issues to consider

For existing landlords, it may not always make financial sense to transfer an existing property into a company as you would have to ‘sell’ the property to the new company, incurring Stamp Duty Land Taxes (SDLT) in doing so.   Although sometimes the future benefits outweigh the short term SDLT costs

Each investor must look at the costs involved as well as evaluating their own financial position as the tax efficiencies will impact clients differently.

We have a novel new offering which allows you to set up a company for £500 and all the annual running costs are only £250 per annum. If you would like more information on purchasing buy-to-let properties in a company, please get in touch.

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About the Author

A board director since 2001, Marc oversees the company’s London rentals operation as well as marketing and developing strategies for new business. He has been instrumental in the company’s expansion, working closely with managing director Anita Mehra to develop its core services and frequently co-hosts property seminars for investors in many international locations. Read more about Marc von Grundherr here - Read full profile

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