As a landlord, should I set myself up as a limited property company?

Over the years profitability of buy-to-let property has really changed and many individuals in the business are finding it less profitable now than it was a few years ago. More recently, and mainly due to increases in personal taxes, many landlords now own properties through a limited property company as they can get better tax relief and therefore increase their profitability. You may be asking yourself is this something you should be doing too if you’re an individual landlord or someone looking to get into the business.

If you are a current or potential landlord and thinking about your options as an individual or as a limited property company, get expert advice today from a reliable estate agents in Langley or Burnham. You can call us on 01753 546655 for Langley01628 666666 for our Burnham branch or drop us an email.

What is a limited property company and why would I set one up?

When you buy a property as an individual, the deeds, mortgage, and all paperwork is in your name and any profit you make from your buy-to-let you will personally have to pay income tax on each year. When you set up a limited property company, you own the company and the company owns the property. It is all then in the name of the company and the company pays annual corporation tax on any profit. Corporation tax is currently at a lower rate than income tax, which is why this is attractive to many landlords.

Whilst there is an element of extra admin involved in setting up as a limited property company there are many long-term benefits, particularly if you are a landlord who pays higher rate income tax or you own several properties. It can also be beneficial if you are looking at buying your first buy-to-let and building a property portfolio. Landlords who own their properties through limited property companies also receive their personal income differently as all profits belong to the company. This means that you can keep most of the profit in the business and you can either pay yourself a salary from the company (register with PAYE) or take your income as dividends and pay a smaller amount of personal income tax on it.

Becoming a limited property company can also give you more flexibility if you wanted to transfer the property to someone else, such as a family member. Transferring a property between limited property companies could mean you make savings on stamp duty, inheritance tax, or capital gains tax. Restrictions on buy-to-let mortgage interest tax relief also does not apply to a limited property company. You might also benefit from greater legal protection due to ‘limited liability’, this means if something disastrous was to happen that you are only personally liable for the money you put in when the company was set up and your own separate assets and money are not involved.

How to set up a limited property company

To set up a limited property company, you will need to decide on a company name and give an address for your company. You also need to appoint directors and shareholders and give a definition of what your business activity will be (eg. letting of property). Once you have decided all of this, you’ll need to register your new company with Companies House, the cost of this is fairly cheap and starts at £12.

Once your limited property company has been registered you will need to set up a business bank account to register to pay corporation tax, for this you will need to keep all records such as your confirmation statement and annual returns, an Accountant can take care of all of this for you.

When might it not be a good idea?

If you purchased property many years ago, setting up a limited property company may not be a viable thing for you to do as you’ll have to sell the property to your limited company at today’s prices, with an overall cost to you that may outweigh your personal tax savings.

There are also more responsibilities for landlords with limited property companies, such as filing accounts and returns and it can be harder to get a buy-to-let mortgage as a limited company, although the number of products has increased in recent years, the additional admin and stress isn’t for everyone.

If you also only have one buy-to-let property and your income isn’t overly high or you’re not intending on purchasing more properties the costs to change to a limited property company again may outweigh the benefits of tax saving.

There are costs and many pros and cons to switching to a limited property company so you will need to get expert advice to know what is best to do based on a review of your own circumstances.

Get in Touch

If you would like to speak to the leading estate agents in Burnham and Langley, for any advice based on this subject or anything else industry related make sure you give us a call on 01753 546655 for Langley 01628 666666 for our Burnham branch or even drop us an email. You can also follow us on FacebookTwitter and LinkedIn.

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