Purchasing a Buy-to-Let through a Limited Company: Benefits and Considerations

If you’re ready to take the next step in your property portfolio journey but aren’t sure whether to buy in your personal name or that of a business, take a look at our handy guide below.

Setting up a limited company to purchase a property under is called a Special-Purpose Vehicle (SPV) company and is becoming increasingly common among landlords due to certain tax benefits that aren’t available for private landlords. In fact, 77% of all buy-to-let mortgage applications were made through limited companies in the first half of 2019[1] and in 2021 a record 47,400 new UK buy-to-let companies were incorporated[2].

While we can’t decide for you, we’ve included some key things to consider when purchasing a property under the ownership of a limited company.

The benefits of buying a buy-to-let property under a Limited Company

It may not suit everyone’s circumstances but buying your rental property under an SPV limited company may come with some advantages. We’ve listed a few below.

Tax-deductible costs

Many finance costs, including mortgages, service charges and repairs, are tax deductible for limited company landlords.

This is not the case for private landlords who, as of April 2020, are no longer allowed to offset their income with mortgage interest and expenses. That said, private landlords do receive basic-rate tax relief at 20% on mortgage interest payments, although landlords in the higher income tax bracket will of course end up paying more tax as a private landlord than basic-rate taxpayers.

Lower tax on profits

Limited company landlords pay corporation tax rather than income tax on their rental income. Currently, corporation tax is charged at 19% while income tax is 20% for basic-rate taxpayers and 40% and 45% for higher and additional-rate taxpayers respectively. If you sit in the higher tax bracket, you could save through lower tax rates on profits by owning your rental property through an SPV.

Quicker growth

You can grow your portfolio quickly through an SPV, which can hold multiple properties, as there is no income tax due on the retained profit. This means you could have more capital to reinvest and potentially build your portfolio at a faster pace.

Tax-free dividend allowances

If you own property through an SPV, rental income would be received through dividends. Dividends have a tax-free allowance of £2000 per individual. Above this, dividends are taxed as income, but at a lower rate than if you’d received the income directly. The charges are related to your tax-band. It’s always worth checking with a tax specialist what the current tax-rate is for dividends and how it would relate to your income.

Savings on Inheritance Tax (IHT)

If private landlords wish to gift a property to their beneficiaries, this may be subject to Capital Gains Tax (CGT). However, it may be possible to avoid some of the tax burdens associated with this when the property is held by a limited company. As the company owns the property, you could add a beneficiary as a shareholder to inherit the property at a later date. It’s always worth seeking specialist advice on this first.

Considerations when buying a buy-to-let property under a Limited Company

While all of the above may sound appealing, there are some points to consider before you go ahead.

Higher interest rates

Interest rates on limited company mortgages may be higher in comparison to standard buy-to-let products.

Stamp Duty fees

Stamp Duty unfortunately doesn’t disappear when purchasing through an SPV. If transferring existing property to a limited company, you may be eligible for Stamp Duty Land Tax (Land and Buildings Transaction Tax in Scotland and Land Transaction Tax in Wales) when the transfer of ownership to the company takes place and you as an individual may have to pay Capital Gains Tax. The same level of Stamp Duty Land Tax will normally apply when purchasing under a limited company, compared to personal ownership. It may be advised to set up the SPV before buying your rental property to avoid this.

Consider Capital Gains Tax (CGT)

Landlords operating under a limited company pay corporation tax at a rate of 19% on their capital gains and there is no tax-free allowance. Those purchasing in their own name are charged 18% and 28% CGT depending on if the taxable gains fall within the basic or higher-rate tax bands, so there is a saving to be made for those with gains falling in the higher tax brackets but potentially not for those whose gains fall completely within the lowest bracket when added on top of income.

Administrative duties

Properties owned through a limited company may have additional admin responsibilities. This includes filing annual accounts with HMRC and Companies House.

If you’re considering purchasing a buy-to-let property, we always recommend seeking dedicated advice from an accountant or tax specialist beforehand to learn the best option for your personal circumstances. Once you have made a decision our qualified, professional and friendly Mortgage Advisers would be happy to assist you on your journey of owning a buy-to-let property. Why not get in touch with us to see how we can help make the process as smooth as possible.

Brunsdon Financial is not responsible for the content of third-party websites.

The information provided regarding tax treatment or legislation is based on our understanding of current UK legislation law, tax law and HM Revenue and Customs’ practice (March 2022), all of which may be subject to change. Tax treatment will depend on your individual circumstances. The Financial Conduct Authority does not regulate tax advice and estate planning. 

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

Unlike most other mortgage advice, advice on buy-to-let mortgages is not regulated by the Financial Conduct Authority (FCA).

Source 1, Source 2

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