Is it worth buying rental properties under a limited company name instead of as an individual?

27th June 2017

Tony Freeman, independent property consultant, looks into the benefits of buying rental properties under a limited company name.

It seems that buying buy-to-let properties under a limited company profile, as opposed to individually, is a way of maintaining profitability for rental properties.

It follows the tax changes made to landlords in April 2016, when landlords started to lose the right to claim full tax relief on their mortgage costs. This meant that many landlords saw costs being pushed up significantly.

Previous to the change by HMRC, landlords could deduct both mortgage interest and other costs associated with the buy to let property from rental income, before calculating how much tax is due. This often resulted in a lower income to the landlord as the amount owed was a lower taxable charge.

There are ways in which a landlord can benefit from the rental incomes but avoid losing out on. This includes purchasing under a limited company name.

This does seem to be beneficial but only if the landlord owns at least four properties in their portfolio.

An article in Money Mail highlighted the different costs associated with owning property and these costs are incurred, whether privately owned or through a limited company.

For example, mortgage costs are usually higher on limited company buy-to-let, the way properties are taxed in each structure is different, and the costs involved in holding buy-to-let properties are different with each model.

Each case is different and individual circumstances will change from buyer to buyer which will have an impact on the end taxable amount payable to HMRC.

However, if there is to be a substantial property portfolio, property should probably be purchase under a limited company name. These properties are viewed as a business and all expenses can be written off for tax purposes.

Landlords can still take an income in the form of a dividend and will pay tax on this only – in theory cutting their tax bills significantly – but they need to watch out for the tax on taking those dividends or eventually accessing any profits rolled up within the company.

For landlords who already have buy-to-let properties, one option is to repurchase into a limited company structure.

Tony Freeman notes that this advice comes with a word of caution – if the property purchased as buy to let under a limited company – this incurs two major tax bills: capital gains and stamp duty.

For this reason, if a landlord has a small portfolio there isn’t much to be gained in terms of tax relief for becoming a limited company.

Always seek independent financial advice before making any purchases.


Tony Freeman
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