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Buy-to-Let Property Purchase via a Limited Company: A Brief Overview

Buy to Let

Purchasing a buy-to-let through a limited company is a popular option which brings certain tax advantages. However, there are also potential downsides to this investment approach.

The Advantages of Buying Through a Limited Company

One major point of appeal is the speed and simplicity of establishing a limited company. The whole process can be completed online within around 15 minutes, with no specialist knowledge or skill required. However, seeking the input and advice of an accountant is advisable to ensure you understand the full ramifications of setting up a limited company.

The fact that no income tax is payable on this kind of BTL investment also holds appeal for some. If you are concerned that your rental income may push you into a higher income tax bracket, this can be avoided by purchasing via a limited company. Corporation tax is payable instead, which for some investors could work out more cost-effective.

Private landlords are no longer able to automatically deduct costs like mortgage interest from the income their BTL property generates. Buying via a limited company, costs like these can still be deducted, just as long as they qualify as genuine business expenses.

Buying via a limited company can also simplify future planning, as it is much easier to pass ownership of a limited company to someone else than to transfer ownership of a privately held property, all while potentially offering protection from Stamp Duty, Inheritance Tax and Capital Gains Tax (CGT).

The Disadvantages of Buying Through a Limited Company

There is no capital gains tax allowance whatsoever when a property is sold by a limited company. Whereas a private landlord is given an allowance, a figure over which CGT is payable, this allowance is not extended to BTL properties owned by limited companies.

There are additional costs to consider that apply when running a limited company for this purpose. Just a few examples of which include legal fees, filing at Companies House, corporation tax and hiring an accountant to oversee your books, this is not mandatory, but recommended.

Higher mortgage rates almost always apply for loans taken out by limited companies to purchase BTL properties. Initial fees are also usually higher than those payable by private BTL investors, potentially eating into immediate and long-term profits.
Finding and qualifying for a specialist BTL mortgage for a limited company can also be a challenge. They are not as widely available on the High Street as conventional BTL mortgages, with stricter eligibility criteria to meet to qualify for a loan.

Independent Broker Support

The quickest and easiest way to determine which of the options available is right for you is to consult with an independent broker. After which, your broker can conduct a whole market comparison on your behalf, in order to pair you with the perfect lender to suit your requirements and budget.

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