Is a limited company buy-to-let right for you?

The rental market has become increasingly challenging over recent years, particularly for private landlords. Rising buy-to-let mortgage costs, dwindling tax relief and tightening regulations have left many wondering how to successfully adapt to this new environment. 

Although rental demand remains high, the impact of falling house prices, higher costs and changes to Capital Gains Tax (CGT) means the only answer for some landlords is to sell up and leave the market. For others, the solution may be to set up a limited company, an option that has grown in popularity over recent years. According to estate agent Hamptons, the number of landlords operating as limited companies has doubled since 2017 – there are now 300,000 property companies in the UK, up from 89,757 in 2017. We estimate that 90%/most of all buy-to-let applications we receive are now from limited companies.

This increase, driven mainly by fiscal and regulatory pressures, also reflects the Government’s desire for the buy to let market to become professional. Managing a rental portfolio as a limited company may help some landlords to achieve this. 

Pros and cons of becoming a limited company landlord

It’s important to research and understand the factors involved in setting up a limited company before making a final decision. Here, we look at some of the main points to consider.

  • Tax  – limited companies do not pay Income Tax on rental income, instead they’re charged a fixed rate of Corporation Tax on rental profits up to 25% depending on the size of turnover (from April 2023). This is particularly beneficial for higher-rate taxpayers or those with larger portfolios.

  • Mortgage interest relief – unlike private landlords who can no longer claim mortgage interest relief, a limited company buy to let business can deduct 100% mortgage interest from rental incomes as it’s considered a business expense.

  • Liability  - if something goes wrong, your liability is limited to the value of your financial investment in the business. You can further mitigate this risk by taking out professional indemnity and personal liability insurance.

  • Admin and costs – a company set-up will incur additional costs and associated paperwork such as preparing accounts, filing at Companies House and legal fees.

  • Access to profits – because a limited company is a legal entity in its own right (with the assets and profits belonging to the company), profits have to be withdrawn as a salary and/or dividends and records need to be kept of all these transactions.

  • Future planning - if you plan to transfer ownership to a family member at a later date, then it could be simpler and more tax-efficient to do this through a limited company. As the property isn’t changing ownership (it’s still owned by the company) it could protect the transaction from Stamp Duty, Inheritance Tax and CGT.

  • Limited company buy-to-let mortgages – most lenders charge slightly higher interest rates and arrangement fees for limited company buy-to-let mortgages. To find the best finance for your portfolio, speak to a specialist independent buy-to-let mortgage broker who offers expert, impartial advice. 

As you can see, there are many factors to consider, so seeking financial and legal advice is essential before making your decision. But whether you choose to operate as a limited company or private landlord, those who can ride the wave of rising costs, comply with increasing regulations and work to professional standards, will be in a strong position to take advantage of the continued demand for high-quality rental properties in the future.

Find the right buy to let mortgage

If you’re thinking about setting up a limited company structure to manage your property portfolio, speak to our experienced advisers at Vincent Burch Mortgage Services. We can advise you on the best finance options available and discuss the implications for your investment now and in the future. Our whole-of-market approach means we have access to lenders who are not on the high street, offering bespoke limited company buy-to-let mortgages at competitive rates.

How can Vincent Burch Mortgage Services help?

As a whole-of-market intermediary, our expert team at Vincent Burch Mortgage Services has access to all specialist lenders offering Limited Company mortgages. We’ll work together to understand your requirements and find the best mortgage for your plans. With extensive experience, we are well-placed to guide you through the process and pride ourselves on helping customers make the most of their investment.

Get your business moving by calling us today on 01603 851534 or email [email protected]

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