Should I set up a Limited Company for my Buy-To-Let?

We’re not going to hide our bias - we strongly believe that investing in buy-to-let property through a company just makes sense. As you’ll have seen in previous blog posts, purchasing a property through a company will give you:

1. Full relief on mortgage interest (and access to lower rates of tax!)
2. Limited personal liability
3. More flexibility when you want to sell 
   

But whether you choose to go this route entirely depends on how you’d like to manage your investments. This article lays out how the limited company structure became so popular, and why a property investor may consider this the best option. 

The Rise of Limited Companies

Just a few years ago, purchasing property in your personal name was tax efficient for landlords as they could deduct their mortgage interest and finance costs from taxable rental income. That meant that landlords could save thousands of pounds in the process and earn a greater profit. 

As you can imagine, that was a significant incentive to get into property. To top this off, interest rates worldwide were still at an all time low (thanks to the 2008 financial crisis). Because of this, property became an attractive alternative investment alternative to traditional savings vehicles. 

But this strong interest in property investment rattled the government. As a result, they sought to regulate the buy-to-let market by introducing new rules that changed the gains that property investors could make. They did this by first, introducing a 3% stamp duty surcharge on the purchase of additional properties. They then reduced the amount of relief on mortgage interest to its current form (basic-rate tax credit of 20%). 

These regulatory changes hit property investors hard. But to combat this, they began to go down the company incorporation route instead. Now, the majority of BTL purchases (regardless of the size of the landlord’s portfolio) are completed through a company.

So what are the benefits of a limited company?

As we covered above, there are three core reasons why a limited company just makes sense if you’re thinking about investing in property. 

Firstly, you can offset all of your mortgage interest against profits from your rental income. As the corporate tax rate is 19% (on the first £50k of profits, provided that you do not control any other companies), there is a massive savings to be had. As a point of comparison, the tax rate under a personal name would be 40% (or higher at the higher tax rate). 

Secondly, you’ll get flexibility on how to extract profit from your property business. These days, it’s common to see a mix of salary, dividends, and director’s loan payments. 

Then finally, you’ll get added protection. In the event that things go south with your investment, your limited liability means that your personal assets won’t be at risk. 

Things to bear in mind

Though Limited Companies come with a host of benefits, they also come with a number of responsibilities. As a director of a limited company, you’ll be responsible for:

• Preparing and filing articles of association
• Registering with Companies House
• Filing Companies Act compliant accounts
• Maintaining company records
• Reporting any changes (e.g. a change of address)
• Competing a corporate tax return

For some people, these responsibilities may be a turn off. But this is precisely the reason that GetGround exists! We've developed a platform that allows you to maintain your limited company so that you can reap the benefits without the hassle. We'll take care of forming, structuring, and managing your buy-to-let property company and will make this experience a breeze.

If you’re keen to know how we can help you get the benefits we’ve outlined above, Organise a call with us.