Buy To Let Limited Company: Pros & Cons

Investing in property can be tougher than it used to be. With increased regulation, stamp duty changes, and decreasing tax relief as a property investor, you might witness a reduction in your rental revenue.

But you can combat the situation by buying to let and setting up a limited company.

For a few years, an average of 77% of all buy-to-let mortgage applications have been made through limited companies.

But is making buy-to-let through limited companies or personal ones great for you?

What are the benefits and disadvantages of buying to let through a limited company?

Let’s find out.

Limited Companies for Landlords

Most property investors choose to buy-to-let in a limited company to avoid the hefty taxes on personally owned properties. 

Limited company-owned properties are great for an investor in the United Kingdom and can help you save a lot of money.

Here are a few things to remember while registering your limited company.

1. Company name and addresses

You must create a unique company name and check it online against the current register. Your company address can be your residential address.

2. Directors and shareholders

You must have at least one director, and you can also add additional directors and a company secretary. Allot each shareholder a percentage share of the company. 

Once allotted, a shareholder with holdings greater than 25% is a person with significant control (PSC). Each PSC’s name, nationality, month and year of birth, and service address will feature on the public register.

3. Definition of business activity

You must define your company using the following Standard Industry Classifications (SICs):

• 68209 – Other letting and operating of leased or owned property
• 68100 – Selling and buying own real estate
• 68320 – Management of property on a fee or contract basis

You should consult a qualified accountant about the company type you’re creating. It’s also important to ask your tax adviser about different taxation requirements based on the company type.

4. Take final steps

Once registered your company, you must register for corporation tax within three months and set up a business account.

Following these basic steps for setting up a limited company can help you start your business operations and achieve desired targets.

How to Buy To Let Through a Limited Company?

People think that limited companies are complex and difficult to maintain. But you must follow a few steps, which can streamline your buy-to-let using a limited company.

1. Director’s responsibility

Directors are mainly responsible for the company’s basic functions, like maintaining accounting records, registering the business with Companies House, and ensuring tax is paid on time. You can simply outsource functions to other people and just have adequate oversight. 

2. Records and Accounting

You must maintain accurate and precise company and accounting records. You should submit a “Confirmation Statement”, called an “Annual Return”, within 14 days of the company’s anniversary of incorporation. 

Active private limited companies are required to keep records for three years. If you implement changes to the company’s name, directors’ or shareholders’ structure, and address, you need to notify Companies House and HMRC.

Once you follow all the essential operations of a limited company, you can market your business and look for potential clients for buy-to-let.

You can build a solid portfolio of properties that can help you provide increased variety to your clients and ensure you cater to different requirements and needs.

But is opening a limited company the right decision to make?

Is a Limited Company the Right Option for Buy to Let?

Here are some pros and cons of a limited company that can help you understand whether it’s the right decision to start a limited company for your buy-to-let investment journey:

Pros

• Tax benefits

As a private landlord, you must pay income tax on your rental income. But purchasing your buy-to-let property as a limited company can enable you to pay less tax because rental income from limited company-owned properties is subject to corporation tax rather than income tax. 

• Claim back your expenses

Owning a rental property privately, you cannot claim back certain expenses, like your mortgage interest. But expenses work differently for a rental property of a limited company. Expenses like mortgage interest are defined as business expenses for buying to let investment companies.

• Protect your assets

Setting up a limited company can help to protect your finances if anything goes wrong with your new property investment because the company provides limited liability for its directors.

Cons

• Additional costs

You will face additional costs when you purchase property through your buy-to-let to a limited company. The additional costs include legal fees, corporation tax, filing a return at Companies House, etc.

• Increased mortgage rates

Before investing in property using a limited company, you should plan to fund your purchase. In many cases, a mortgage is required to pay for the initial purchase of the property.

There are multiple other complications that you may encounter while starting and operating a limited company, but they can be handled easily with the help of professionals.

Pluxa Property can help you manage your buy-to-let property investment made through a limited company.

With years of experience managing buy-to-let properties and helping investors achieve their financial goals, we can help you with the same.