Umesh Modi and Vinku Shah examine the advantages and disadvantages of owning ‘buy to let’ properties through a limited company…

With the bank interest rates at a historical low, investors are looking for a better return on their cash elsewhere. The obvious place to look at is either commercial property sector or buy-to-let (BTL) residential property, which may give a net return of 4 to 5 per cent per annum.

The reduced stamp duty on properties valued at up to £500,000 available up to September 2021 has meant that more properties have come on the market with greater choice for an investor. So, should you buy in your personal name or through a limited company?


Potential tax saving
If a BTL is owned personally, the net rental income will be added to your other personal income and depending on your tax position, you could pay tax at 20 per cent if you are a basic rate taxpayer or 40 to 45 per cent if you are a higher rate taxpayer.

Holding a property in a limited company instead may be beneficial as rental profits in a limited company are charged at the corporation tax rate of 19 per cent at present.

Personal investment
Any personal funds introduced into the limited company for the purpose of acquiring a BTL can be drawn back out of the company tax free provided the company has sufficient funds. In the case of owning a BTL personally, the investment would be tied until such time the property is either sold or has sufficient equity built up and you decide to re-mortgage, and this could take a number of years.

Finance costs
The tax relief on finance costs available to private landlords has gradually decreased since 2017. Landlords can no longer claim tax relief on finance costs at their marginal tax rates of 40 per cent or more but instead get a 20 per cent relief against their total income tax liability.

Limited companies holding BTL properties are able to deduct finance costs in full when calculating the net profits for the purpose of tax as these costs are considered business expenses.

Ownership changes
It is easier to transfer the ownership of the limited company to a new owner than a property that is owned personally. As the property would still be owned by the company, it would potentially protect the transaction higher Stamp Duty, Inheritance Tax and Capital Gains Tax through proper tax planning.

This would be important for future planning especially if you have family members to whom you plan to pass on the business.

Income tax planning
With a personally owned BTL, one would be liable to pay tax on the net rental income and therefore there is no control over planning your income.

With a BTL in a limited company, you are charged tax on the income you receive from the company which would be in the form of salary and dividends. If you do not have any dividend income from other sources, you could take up to £2,000 of dividends tax free in each tax year.

Mortgages held in a limited company will not be considered as financial commitments and therefore allow for increased personal borrowing. You would also have an additional income source in your application for personal borrowing being the income from your limited company e.g., dividends.

Limited liability
With a personally owned BTL, you take the risk of being liable for the mortgage plus your tenant’s debts e.g., utilities, council tax arrears, etc. and this could leave a negative impact on your credit file.

A limited company would take that risk away from you as the property would be registered in the name of the company and it would therefore be liable for all the debts and arrears.

Tax on disposals
An individual would be liable to pay tax on the gain made upon disposal of a BTL at 18% (for basic rate taxpayer) or 28 per cent (for higher rate taxpayers) whereas companies would pay tax at the current corporation tax of 19 per cent.

Gains disclosure
From April 2020, any gains on residential properties including BTL properties will have to be reported to HMRC within 30 days of the sale and the tax on that gain worked out and also paid within the 30-day timeline. Any tax underpaid will attract interest and any tax overpaid will only be claimed after the end of the tax year in which the sale occurred. This does not affect limited companies.


CGT allowance
Gains on properties that are sold by individuals attract an annual CGT allowance (currently £12,300 for 2021/2022) i.e., any gains below this amount would not attract any tax. This is not available to limited companies.

Additional costs
You will need to appoint an accountant to deal with HMRC, annual accounts preparation, statutory filings at Companies House, etc. The potential tax savings should outweigh the cost of a good accountant in the long term.

Another disadvantage is that a limited company will have to file its accounts at the Companies House, and these will be available to the public as opposed to personal tax returns which are between you, your accountant and HMRC.

Personal guarantee
With a limited company, the liability to the creditors would generally be those of the company but the mortgage lender will usually ask for a personal guarantee and therefore you could be liable for the mortgage debt of the company should it be unable to repay the debt.

Higher costs
Most lenders charge higher interest rates and fees to limited companies due to the extra work involved as opposed to BTL in personal names. Conveyancers also charge extra due to additional work for example registration of charges at Companies House, etc.

A comparison of the increased costs against the potential long-term tax savings should be undertaken.

Equity release
Individual landlords have been able to release equity from properties in areas of capital appreciation without any tax implications and use these funds for various reasons e.g. buying a car, holidays, home extensions, etc.

Any equity created in BTL owned through a limited company would belong to the company and if it was needed for personal purposes then it would have to be taken out as income and taxed accordingly.

Company’s activities
Mortgage lenders are not fond of lending to companies that also conduct other business activities e.g. trading. As a result, most lenders require special purpose vehicle (SPV) for property holdings.

The decision of whether to buy a BTL through a limited company or in your personal name is not straight forward and you will need to consider various factors as well as discuss the various options with your accountant.

This article is based on current legislation and practice and is for guidance only. Specific professional advice should be taken before acting on matters mentioned here. Umesh Modi BA ACA, is a Chartered Accountant and Tax Advisor, and a partner at Silver Levene LLP. He can be contacted on 020 7383 3200 or umesh.modi@silverlevene. Vinku Shah, FCCA, is a Chartered Certified Accountant and Manager at Silver Levene LLP. He can be contacted on 020 73833200 or [email protected].


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