With all the recent tax changes affecting landlords across the UK, making the right choice matters now more than ever. Let's take a look at the pros and cons of going the company route.
The advantages
Tax savings are a major win here. When your properties are in a limited company, you'll pay corporation tax on profits instead of income tax. With corporation tax sitting at 25% for companies making over £250,000 (and just 19% for those under £50,000), this can be much lower than the higher income tax rates of 40% and 45%.
Better tax breaks on mortgage interest are another big plus. While private landlords can't claim full tax relief on mortgage interest anymore, limited companies can still write off all finance costs as business expenses. Depending on how many properties you own, this could save you thousands each year.
Better choices for accessing profits put you in charge of how and when you take money from the business. You can opt for dividends, which are often taxed at lower rates than regular income, or leave profits in the company to reinvest later.
Passing on your property becomes simpler with a company structure. You can gradually give family members shares in the business, potentially reducing inheritance tax while still keeping control of how the property is managed.
The disadvantages
Higher mortgage rates usually apply to limited companies. Lenders tend to increase interest rates for company borrowers because they are viewed as riskier and more complicated to underwrite. This could diminish your profits, especially on larger mortgages.
Getting a mortgage might be trickier. Even though this area is growing, there are fewer mortgage options for limited companies than for individual borrowers, which could limit your choices.
Taking money out of your property can be complicated. If you decide to remove the property from your company later on, you'll be liable for stamp duty land tax, capital gains tax, and legal fees that you wouldn't have to deal with if you owned it yourself.
More paperwork comes with company ownership. You'll have to keep up with Companies House filing requirements, maintain proper company records, and deal with more complex accounting – all extra hassle you wouldn't have otherwise.
Is it right for you?
It depends on your circumstances. Usually, the limited company approach works better for higher-rate taxpayers with several properties or those looking to build up a bigger portfolio. But if you're a smaller investor or basic-rate taxpayer, the extra costs and complexity might not be worth the tax breaks.
Before you decide anything, talk to both a tax specialist and mortgage adviser who specialise in Buy-to-Let investments to determine the best approach for your specific situation.
Interested in exploring Buy-to-Let mortgages using a limited company? Give us a call on 03454504660.
Your property may be repossessed if you do not keep up repayments on your mortgage.
Most buy to let mortgages are not regulated by The Financial Conduct Authority.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen. For specialist tax advice, please refer to an accountant or tax specialist.
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