Your guide to Limited Company buy-to-let

For landlords with a number of properties, or those considering purchasing to build a portfolio, a limited company could be a good solution. They help to offset the changes to tax treatment, which reduced allowances and stamp duty surcharges. 

Why should I consider a limited company for BTL?

As an individual, tax is paid on all income sources, including rental income. Its charged at 20%, 40% or 45% depending on the tax bracket into which total individual income falls. 

Placing property into a limited company shields this income from a client’s personal income tax. Instead, like all limited companies, corporation tax is charged against profits (rate at publication 19%) which could mean a significant saving. Mortgage interest is classified as a business expense through a limited company, so you can deduct the amount before paying corporation tax.

Will the corporation tax rate change?

 Yes. Corporation tax is set at 19% until April 2023, after that date, the 19% band will only apply for businesses whose profits are below £50,000. For those making greater profits, the corporation tax rate will increase up to 25%. There will be a taper for firms earning above £50,000. Only firms earning £250,000 or above will pay the full 25% rate.

Can I transfer my existing properties to a limited company?

 Yes. It is effectively a sale and purchase. The transaction will be liable to stamp duty as well as other charges such as legal and valuation fees and the cost of producing annual accounts. 

Can I keep my existing mortgages on the properties I transfer to a limited company? 

 No. The ownership has changed from an individual(s) to a limited company. Mortgages will have to be redeemed and replaced with new ones that reflect the change of ownership. Early redemption charges might be levied by existing lenders, particularly if the mortgages were locked into fixed-rate deals.

How do I set up a limited company for BTL properties

 As a new company director, the landlord will be legally responsible for its activity. Properties can now be bought in the name of the company, although personal guarantees from the director(s) will be a condition of taking out mortgages. An annual tax return will also have to be submitted to Companies House showing profit or loss. This is public information that will be accessible to everyone.

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