top of page
  • Writer's pictureThe Cedar Crest Team

Should you purchase your Buy To Let Property Via a Limited Company or in Personal Name?

The recent tax changes in the UK have seen a noticeable shift in people choosing to buy investment property via a limited company. For some, this can be a very efficient way of growing your property portfolio but it is not by always the best option for the following reasons:



Tax on Rental Income


Buying through a limited company means you pay corporation tax on profits rather than personal income tax. Corporation tax is 19% whereas income tax starts at 20% and can increase to 40% for higher rate taxpayers and 45% for additional rate taxpayers. If you are a higher rate taxpayer, i.e. have £50,000 or above in UK income, the tax savings could be quite significant.


 

You can deduct all your mortgage costs before you calculate profit


It is now not possible for individuals to claim full relief for mortgage interest in their tax assessment. However, limited companies can still deduct the full amount when completing their tax return. Again, this reduces the amount of tax you will pay on rental income.


 

Inheritance Tax Mitigation


It is possible to mitigate inheritance tax liability such as including your beneficiaries as shareholders as in the limited company. However, you should seek professional advice on your situation to see if this applies to you. *This does not constitute financial advice*


Limited Liability


Setting up any limited company means that the shareholders are liable for any losses only up to the value of the company shares. Whereas as an individual, you would have personal and unlimited liability for any losses on the property.


Dividend Tax


One thing to be wary of is that while the company will pay a lower rate of tax on profit (19% corporation tax), if you take money out of the company, as a director, you will be liable for dividend tax, so depending on what level of taxpayer you are, it may not be efficient to take money out of the company in the short term to top up lifestyle.


Interest Rates


In the eyes of the lender, a company with limited liability will be considered a higher risk. Therefore, the interest rate on your mortgage will likely be slightly higher than the typical rates for individuals. So, you need to balance whether the higher rate plus being able to offset mortgage interest still work out financially.


Running Costs


There are more costs associated with running a limited company, such as accounting. While hiring an accountant will make your life much easier, the costs still need to be factored in as well as other business running costs.

 

How to decide between the two?


Which route is best will largely depend on your circumstances and investment property goals. Do you want an income today to top up your lifestyle? If yes, or if property will likely remain only a small portion of your assets, buying through a company may not be so worthwhile.


Are you building a significant property portfolio to provide an income for the future or do you already have one? In this case, buying through a limited company can be very tax efficient. Even if you are a basic tax rate payer today, if you see that you will become a higher rate taxpayer in the future, it could be worthwhile to plan ahead. By taking the income from the company later in life when you don’t have any other income, will mean less tax to pay as well as benefiting from all of the tax savings in the accumulation phase.


>> LOOKING FOR A BUY-TO-LET PROPERTY VIA A LIMITED COMPANY OR IN PERSONAL NAME? <<


In the end, whichever route you choose, planning ahead in good time and making sensible choices at every stage of the buying process will give you the best outcomes. Cedar Crest’s mortgage brokers are experienced in providing the best property financing solutions for both individual buyers and limited companies. Get in touch with us to get started. To discuss how we can help you finance it, contact us –UK +44 (0) 203 883 1017 Hong Kong +852 6017 4140 – email info@cedar-crest.co.uk.

Your home may be repossessed if you do not keep up repayments on your mortgage.

38 views0 comments

Comments


bottom of page