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Setting up a company to purchase Buy to let property

Setting up a company to purchase Buy to let property

The number of landlords buying through a limited company has increased significantly in the past year. Approximately 60% of buy-to-let businesses are now through a limited company. 

This figure is up by 20% since the buy to let tax changes came into effect. If you purchase property to let via a limited company it will usually be within a Special Purpose Vehicle (SPV), which is a company specifically set up to purchase property. 

It’s also the type of limited company most often accepted by mortgage lenders. 

Go online to www.gov.uk/register-a-company-online to get started. The process is quick and cheap costing just £12.

Advantages

Limited Risk

Because you don’t own the property your credit file cannot be damaged by debts associated with it, such as unpaid utility bills or council tax.

Tax Efficiencies

Limited companies are subject to corporation tax which is charged on profits up to £300,000 at 20%. They are not subject to new ‘turnover tax’. You could pay yourself a tax-free dividend income up to £5000 a year from your limited company.

Build a Portfolio

You don’t pay income tax on the profit you retain in the business, so it is an efficient way to build a deposit for another property or to grow a portfolio.

Gift Assets

You can change the company’s directors or shareholders which means you can potentially gift an asset to a family member.

Disadvantages

Mortgage premium

Some lenders charge a premium for mortgages lent to limited companies rather than individuals, although more are now offering cheaper limited company loans.

Costly and Complex

It can be expensive to transfer properties to a limited company and it can be very complicated, so it’s best to seek professional advice.

More time required

You will have the hassle of dealing with annual tax returns and company accounts, which takes longer than submitting a personal tax return and can cost more in accountancy fees.

Tax on Exit

Individuals selling a property have an allowance of £11,100 Capital Gains Tax allowance (2016/2017) but this allowance doesn’t apply to companies.

Read our Guide on Buy-to-let or contact us on 02920 489000 for further information.