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The Lettings Specialists, Surrey and Sussex

Expert Property Advice

Buying as a Limited Company V Personal Ownership

Landlords can no longer deduct all of their finance costs from their property income.

Landlords now instead receive a basic rate reduction from their income tax liability for finance costs. So, if you incur £5,000 mortgage payment interest, you will only be able to claim £1,000 (20% x £5,000) off your tax bill. However, this change does not apply to limited companies, many Buy-To-Let landlords are therefore tempted to take advantage of this and continue claiming tax relief on all the interest and finance costs. A limited company will enjoy the tax relief that individuals are now losing, and any net profit will be taxed at the lower Corporation Tax rates (currently 19%).

Below are some points to be aware of if you are considering this option:

  • If you transfer the property from yourself to the company, effectively the company buys the property, then the company could become liable to pay Stamp Duty Land Tax (SDLT). So, whilst you reduce income tax, you may end up paying the same amount or more in Stamp Duty Land Tax.
  • If you transfer the property to the company, this will be treated as if you have sold the property to the company. If the property has increased in value since you purchased it, you’ll have to pay some capital gains tax on the difference (currently 28% but there are potential relief and allowance options). If you have several properties to transfer, you MAY be able to defer your Capital Gains Tax.
  • If your company needs a mortgage to buy the property the interest rate is higher for commercial or company mortgages than it is for individuals.
  • If you acquire the property as a company, the company owns it, not the landlord. If something happens to the company, all its assets will be exposed including the property that you put in it.
  • If you sell the property, the company will pay Corporation Tax on the profits and the balance of the money from the sale will remain in the company.  In order to get access to the funds to enjoy you would need to take it out of the company either as salary or dividends or other means and then pay additional tax on that income.

But there are some situations where you can potentially reduce or eliminate the pitfalls above and enjoy some of the benefits of holding your properties through a limited company:

  • If you are buying a new property, then a limited company could be a good idea. But if it is an existing property and you are only managing one or two properties, you may be better off paying just a little bit of tax now instead of triggering these various taxes and then having to pay additional Capital Gains Tax if you sell the property in the future.
  • If you currently run your Buy-To-Let properties through a ‘partnership’, then transferring into a limited company could be a good idea because some of the tax burdens above could be reduced.
  • If you plan to leave your Buy-To-Let properties to your children, you could consider the pros and cons of a Family Investment Company as an alternative to a Trust.

Please note that Knights are not qualified tax advisors and we would advise that you do not set up or move Buy-To-Let properties into a company without taking professional tax advice. We would be happy to put you in touch with an appropriately qualified professional.

Want to get free advice from qualified and experienced Letting experts?

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Mark is Managing Director of Knights Estate Agents and has over 25 years experience in property lettings

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