Setting Up a Limited Company for Your Buy-to-Let Properties. Is It Worth It?

Written on 7 September 2016 by Robyn Clark

If you're starting to feel the pinch in the buy to let market and have concerns ahead of the proposed changes to lending affordability and the additional tax changes coming into force in 2017, now could be the time to consider limited company buy to lets.

Setting up your buy to let investment in a limited company allows you to benefit from advantageous tax rates that can be lower than high-rate income tax and capital gains tax rates which could apply if property is held in your personal name. Those who hold property in limited companies will also be unaffected by the tax relief changes coming into force in 2017, meaning that buy to let lenders may continue to offer lower rent stress tests and improved lending affordability to such landlords.

Who are buy to let Limited Company investments for?

Whether you're an established buy to let investor or just starting out and considering investing through a limited company, it's important that you seek tax, legal and mortgage advice from the outset. This knowledge will help you understand the potential advantages and disadvantages associated with company ownership as well as the additional responsibilities you'll be taking on.


The decision as to whether a company should be used to hold property will essentially depend on your future intentions. As with any financial decision, suitability is dependent on a number of individual factors, from your goals, financial situation, current rates and the availability of mortgage finance to Limited Companies. There are many things to think about if you’re looking to move from personal name to limited company and many possible advantages and disadvantages that you’ll need to consider.


Possible advantages of using a Limited Company

  • Higher tax relief - from 2017-2020 the amount of buy to let tax relief individual landlords will be able to claim back, will be progressively cut from a maximum of 45% to 20% for top rate taxpayers. This change does not affect Limited Companies though, so if you are a top rate tax payer, the amount of tax you'll pay via a Limited Company will be lower than tax on your individual income.
  • No income tax when reinvesting profits to secure further properties - this means you could grow your BTL portfolio quicker within a Limited Company because you won't be paying income tax on the retained profit.  Although corporation tax is payable on trading profits, this is lower than the higher income tax rate.
  • Personal funds can be drawn back out of the company - any advances your you makes to your Limited Company, for example the mortgage deposit, can be drawn back out of the company by way of a Directors Loan, which is a tax efficient way of withdrawing the money. 


Possible disadvantages of using a Limited Company

  • No Capital Gains Tax (CGT) allowance when you sell  a property - whereas individuals selling a property would have £11,100 CGT allowance (2015/16)
  • Additional cost of running a Limited Company - such costs include the preparation of accounts, company tax and corporation tax calculations for HMRC, filing at Companies House, legal fees, and annual auditing if applicable. Your accountant may also charge higher fees when preparing the accounts for a Limited Company.
  • Higher mortgage rates - Most lenders charge higher interest rates and fees for buy to let mortgages via a Limited Company to individual buy to let mortgages. This could change if competition increases in the market.
  • Reduced choice of lenders and mortgages - Many lenders do not offer mortgages to Limited Companies and often, if they do, their product range is much smaller.


Should you transfer from individual name to Limited Company?

If you don't yet own any buy to let properties it's simpler to start the process with a Limited Company than if you're an investor transferring existing property. However, before deciding to proceed you should seek independent advice from tax, legal and mortgage specialists.

If you are transferring property from your personal name to a Limited Company you are likely to be liable for Capital Gains Tax and Stamp Duty Land Tax (SDLT) on the transfer, so it's important to understand if the overall benefits outweigh the costs. It is therefore important that you speak with an accountant or tax adviser before undertaking this type of transfer.

What you plan to do with your buy to let investment will impact this decision so it's important for you to outline what you ambitions are. Do you want to downsize or grown your portfolio? If it's the latter then doing so via a Limited Company structure, if you're willing to pay these one off costs, it could possibly be worth it in the long run.

For more information on limited company buy to lets please call 0330 433 2927 or request a call back here

Categories: Buy-to-Let Mortgages, Robyn Clark