There are certain benefits to buying a buy-to-let through a limited company, you just need to know how to make the most of your investment.
A BUY-TO-LET LTD COMPANY OFFERS IMPROVED TAX EFFICIENCIES AND PLANNING
You Don't Pay Income Tax on Rental Income with a Buy-to-Let LTD Company, you Pay Corporation Tax Instead.
Conversely, rental profits on properties held in a limited company are not taxed according to personal Income Tax rates. Instead, they’re charged Corporation Tax which stands at 19% (2021 - 2022); it has no upper tiers unlike those for Income Tax.
You Can Deduct Certain Expenses When You Own a Buy-to-Let Through a Limited Company
Private landlords can no longer automatically deduct finance costs - like mortgage interest - from rental income. This is not the case for buy-to-lets owned in a limited company. You can still deduct these kinds of expenses from the income on limited company buy-to-lets as they’re considered business expenses.
We recommend you speak to an accountant about the tax benefits of limited company owned buy-to-lets.
WHAT ARE THE ADVANTAGES OF BUYING A BUY-TO-LET PROPERTY THROUGH A LIMITED COMPANY?
Setting Up Is Simple and Quick
Setting up a buy-to-let company takes just 15 minutes and can be done easily online. Nonetheless, we recommend you seek advice from an accountant or legal advisor before making any big decisions.
Future Planning Can Be Easier
It’s simpler to transfer a limited company to another owner than a privately held property. The property does not change owners but remains under the company’s ownership, which could protect the transaction from Stamp Duty, Inheritance Tax and Capital Gains Tax (CGT). This is useful if you plan to pass your business onto family in the future.
You Could Expand Your Portfolio Faster
Retaining profits within the company helps to protect you from tax liabilities because if you sell one of the buy-to-lets, you’re not making a “capital gain”. Instead, your business is making a profit. This could help you use more of your earnings to expand your property portfolio faster.
You Could Have a Limited Liability Company
If you own a limited liability company then you’re not personally liable for any debts held by the company, including those on buy-to-lets. However, bear in mind that you’re not absolved of the personal guarantees often required by your mortgage lender.
WHAT ARE THE DISADVANTAGES OF BUYING A PROPERTY THROUGH A LIMITED COMPANY.
No Capital Gains Tax Allowance
When a limited company sells a property, no Capital Gains Tax (CGT) Allowance is given.
You don’t pay CGT on buy-to-lets owned by limited companies. Instead, you're subject to Corporation Tax when you take profit out of the business. This means you’re not entitled to the allowance. Whether it works out better for you financially depends on how much profit you gain from the sale of your buy-to-let.
The Additional Costs of Running a Limited Company
You’ll have to factor in new costs and tasks when you set up a limited company.
These costs and tasks tend to be:
· The preparation of accounts - this is a legal requirement
· Corporation Tax
· Filing at Companies House
· Legal fees
· Annual auditing - if applicable
Accountants may also charge a higher fee when preparing accounts for Companies House.
Higher Mortgage Rates
Most lenders charge slightly higher interest rates and fees to limited companies compared to individual buy-to-let mortgages.
A Reduction in the Choice of Lenders and Availability of Mortgages
Not all buy-to-let lenders offer mortgages to limited companies and those that do tend to offer somewhat smaller product ranges.
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