Limited Company Buy To Let Advantages

Using a limited company to buy or hold buy-to-let property has been tipped by some as a possible solution for staying profitable after landlords began to lose tax relief earlier this year.

But new research suggests that using a limited company is only worth it if you’re buying four or more properties.

Existing landlords would need to have even larger property portfolios to make switching from personal ownership to a limited company worth it.

There are different costs associated with owning property through a limited company or personal ownership. 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.

All of these must be weighed up to determine which leaves the owner better off.

A landlord earning £46,010 annually – from both a £35,000 base salary plus £11,010 in rental income – will have £36,194 in take home income if purchasing an average two-bed property as an individual after tax and mortgage costs have been deducted.


If the same landlord purchased through a limited company, they would earn £34,825 in take home income – £1,369 or 4 per cent less.

The calculations suggest even larger scale landlords could be better off remaining as personal investors.

A landlord with five rental properties, earning £90,050 in total income (a £35,000 salary and £55,050 in rental income) would have £53,768 in take home pay once mortgage and tax costs are deducted when acting as an individual.

If the same landlord was to repurchase these homes under a limited company, they would have £54,584 in take home pay.

Once capital gains and stamp duty costs are taken into account they would be left with just £5,374.

Spreading these one-off payments across ten years, take home pay would be £49,663, more than £4,000 less per year than operating as an individual.

Whatever you decide to do, it’s worth speaking both to a specialist tax adviser and an independent mortgage broker who will assess your personal situation and advise on the best approach for you.

Using a broker to look at your mortgage costs can also help mitigate some of the dent that losing tax relief has on your income.

They can also advise on how using a limited company would affect those costs.

Limited company mortgage products are available through a handful of smaller lenders, resulting in higher rates compared to personal borrowing.

Larger landlords might find the tax benefits associated with limited company ownership outweigh the higher cost of mortgage borrowing, but each investor is different and there’s no one-size-fits-all solution.

Private landlords who owned properties in their own names could deduct both mortgage interest and other allowable costs associated with a let property from their rental income before calculating how much tax is due.

This meant the income they had to declare to HMRC was much lower than their rental income, keeping their costs down and keeping many in a lower income tax bracket.

But since 6 April 2017 landlords have begun to see the amount they can write off for tax purposes drop by 25 per cent each tax year until 2020 when they will have to declare all of their rent as income, pay income tax on the total and then claim back for 20 per cent of it as a credit.

However these changes don’t apply to buy-to-lets owned by a limited company. Because these properties are viewed as a business, 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.

But be warned, this incurs two major tax bills: capital gains and stamp duty, making it an inadvisable move for landlords with a small number of properties who do not have much to gain from being in a limited company.

Four things to think about

1. If you already own buy-to-lets and want to transfer them to a limited company you will trigger a sale and repurchase, incurring capital gains tax, stamp duty plus the surcharge plus legal, valuation and mortgage fees.

2. Companies have running costs, incur corporation tax and potentially business rates, require accounts to be formally filed and directors to be appointed. Board meetings have to take place and liability is assigned. This creates an added layer of responsibility for landlords choosing the limited company route.

3. While some lenders price buy-to-let mortgage rates consistently for personal owners and limited company purchases, on the whole, rates for limited companies are higher and they incur higher fees.

4. The tax implications are complicated depending on whether and how you earn any other income. Everyone’s personal tax liability will be different so it’s really worth getting independent tax advice.