Thinking of setting up a Limited Company to invest in buy-to-let property?

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Limited liability companies can now be used to facilitate the purchase of buy-to-let properties. Previously, it has been difficult to raise finance as a corporate structure but now there are several lenders who specialise in limited company buy-to-let mortgages.

This blog is particularly aimed at the acquisition of new properties, as the transfer of existing property from personal to corporate ownership will have costs in terms of stamp duty land tax and capital gains tax. These charges will not apply if the property portfolio is held in a formal partnership, which is recognised as such by HMRC. There are some conditions to be met but there might be scope for planning around this, which we will be able to advise on.

Why use a corporate structure for a buy-to-let portfolio?

 A limited liability company can be set up just to hold property assets, where the profits from lettings can be withdrawn when needed as a salary or as dividends. This company can now be used to facilitate the purchase of buy-to-let properties. Previously, it has been difficult to raise finance as a corporate structure but now there are several lenders who specialise in limited liability company buy-to-let mortgages. 

This strategy may not be suitable for everyone and this complex decision does depend on your long-term financial goals, so please do seek professional advice early.

Possible benefits of corporate ownership

  • If you are an additional or higher rate tax payer, by using a limited liability company, your rental income is not immediately subject to your highest marginal rate of tax. The rental income after expenses would be subject to corporation tax within the company and then can be withdrawn efficiently as needed.
  • Setting up a company does not have to be complicated or expensive
  • Building a buy-to-let portfolio via a limited liability company can be a useful way to build and boost your retirement income, whilst giving you the flexibility to manage your highest marginal rate of tax in retirement.
  • The company can have multiple shareholders, meaning that it can be useful for estate and inheritance tax planning, specifically, for passing on assets to children and grandchildren.
  • Allows leverage, as the company can be leveraged to fund further expansion of the portfolio.
  • The limited company status means that your liability runs only to any investment that you make in the company.
  • There are fewer age restrictions imposed by lenders when lending to a limited company, than to an individual.

When is it not suitable to use a corporate structure?

  • A limited liability company is helpful, in the most, for managing income over the longer term and is unlikely to be suitable if your goal is to buy and sell property for profit.
  • If you are only planning to own just one buy-to-let property, using a corporate structure may not be suitable.
  • There are costs associated with annual compliance on the completion of accounts and also filing obligations at Companies House and with HMRC.

DRG Chartered Accountants, working closely with a range of financial advisors, can help you to understand the suitability of the use of a corporate structure on your long-term objectives, the tax implications around this strategy and to access lenders who specialise in limited liability company buy-to-let mortgages. Please do get in touch if you would like to find out more.

Our thanks to Alex Cheema, Old Bray Financial Ltd, for providing the content for this blog.

DISCLAIMER: This information is for guidance only, and professional advice should be obtained before acting on any information contained herein. We will not accept any responsibility for loss to any person as a result of action taken or refrained from in consequence of the contents of this publication.

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