Limited company buy to let guide.

Whether you are an existing landlord, or are just starting out and are thinking about investing in buy to let, you might be considering purchasing property through a limited company. However before going ahead and setting up a company to purchase property, you should find out if this is right for your circumstances by seeking independent financial and legal advice. 

Working out if you should set up a limited company for buy to let is complicated, there are advantages and disadvantages you will need to consider.

Advantages

• From 2017 to 2020 landlords mortgage tax relief will reduce over time from a maximum of 45% down to 20% for top rate taxpayers. However, this change does not affect limited companies.
• No tax on director dividends up to £5,000. Until 05 April 2017 there is a tax-free net dividend allowance of £5,000.
• No income tax when re-investing profits to purchase further property. Your property portfolio can grow more quickly as a limited company as there’s no tax on retained profit, and this can be used to make further buy to let investments.
• Personal funds can be drawn back down from the limited company. Any payment may to the limited company, such as the deposit, can be drawn back as a director’s loan.

Disadvantages

• Loss of capital gains allowance when the company sells a property. As an individual, you would have an £11,110 allowance (2016/17)
• Costs of running a limited company. It will be necessary to prepare accounts and calculate company tax and corporation tax for HMRC.
• Higher mortgage rates. Lenders tend to charge higher rates to limited companies than individuals.
• Fewer mortgage options. Many lenders don’t offer mortgages to limited companies, and those that do may have a limited range of products to choose from.

At Deal Direct we can help you source a buy to let mortgage, but we can’t advise you on whether you should do this through a limited company. So, if you need mortgage advice call us on 0800 048 8828, however, if you need financial advice then we recommend that you contact an IFA. 

For buy to let mortgage advice call 0800 048 8828