Close this search box.
Close this search box.
020 3740 5856

Contact us today

If you have a query for us, please fill in this short form. We aim to respond within a few hours. 

Request a call back

If you would like to talk with one of our advisers at a time that is convenient to you, please fill in this short form.

Contact Sterling and Law

If you have a query for us, please fill in this short form. We aim to respond within a few hours.

Moving your personally owned buy to let portfolio into a Limited Company is legally a sale and purchase transaction.

Article by Akwasi Duodu

Should I buy to let as a Limited Company?

One of the most frequently asked questions by prospective and existing landlords is whether buying to let as a Limited Company is an option worth exploring. This is because tax breaks for individual landlords have been greatly reduced. So what are the benefits of buying as a Limited Company?

Buy to let, personal or company?

Whilst each option has its own tax implications, we believe there is little point in setting up a Limited Company if you’re a basic rate taxpayer intending to rent out one or two properties. Purchasing through a Limited Company could hold tax advantages for those with bigger ambitions.

Which is better from a tax point of view?

From 2020/21, individual landlords were no longer able to deduct finance costs, including mortgage interest from their property income. They instead were to receive a less effective basic rate tax reduction to their income tax liability.

As well as restricting tax relief to basic rate (20%), the measure had the effect of increasing taxable income and could push the landlord into becoming a higher rate taxpayer.

Limited companies on the other hand can offset all their mortgage interest and other finance costs such as mortgage arrangement fees against profits from rental income before paying corporation tax. This means that whilst individual landlords are effectively taxed on turnover, Limited Company landlords are taxed on profit. Much fairer.

Transferring existing personally owned rental property into a Limited Company

Unfortunately, this is where things get tricky and expensive. This is because moving your personally owned buy to let portfolio into a Limited Company is legally a sale and purchase transaction. This means that the process is subject to the same additional taxes, costs and fees as any other property purchase.

These would include stamp duty, capital gains tax, legal fees and early redemption charges (if applicable). In effect you’d be purchasing your property portfolio twice!  HMRC have cleverly ruled that the property must be sold to the Limited Company at the open market value, so discounting the value of the property would not be an option.

Good news for beginners

Whilst we’ve established that existing portfolio landlords looking to transfer to a Limited Company may be stuck, those starting from scratch have much better options. But this would only be true for those looking to build a large portfolio of properties (say 6 or more) or those looking to purchase a smaller portfolio of properties at the higher end of the market.

There are however drawbacks for the Limited Company purchaser. Legal fees are often higher because of the additional corporate legal work involved. You will also need to provide the revenue with annual corporate accounts. Mortgages for limited companies are set at higher interest rates although the gap with individual rates is closing.

Tax implications

There are also tax implications when you need to take money out of a Limited Company. Finally, you’ll need to act like a company to qualify. This means proving that your buy to let properties are a business. To do that, you will have to select the tenants yourself, collect the rent yourself and even undertake minor repairs through the Limited Company.

Are the drawbacks worth the hassle? For the more ambitious buy to let landlord, we think so. If your ambitions are smaller scale, it may be worth saving yourself the hassle and doing things the traditional way. Either way, seek professional tax, legal and financial advice before taking the plunge.

Share this article:

Subscribe to our newsletter

Request a Free callback