Buy to Let – LTD company Vs Personal name


You Don’t Pay Income Tax on Rental Income with a Buy-to-Let LTD Company

You pay Income Tax on rental income when you own rental property in your own name as a private landlord. The rental income you receive is added to your personal income and your overall income amount determines your Income Tax band. This means that your rental income can push you over a new threshold, leaving you liable to higher taxes. You can find out more about landlord taxes in this guide: Rental Income and Other Landlord Taxes.

You Pay Corporation Tax Instead

Conversely, rental profits on properties held in a limited company are not taxed according to personal Income Tax rates. Instead, they’re charged Corporation Tax which stands at 19% (2021 – 2022); it has no upper tiers unlike those for Income Tax.

You Can Deduct Certain Expenses When You Own a Buy-to-Let Through a Limited Company

Private landlords can no longer automatically deduct finance costs – like mortgage interest – from rental income.

This is not the case for buy-to-lets owned in a limited company. You can still deduct these kinds of expenses from the income on limited company buy-to-lets as they’re considered business expenses.

Future Planning Can Be Easier

It’s simpler to transfer a limited company to another owner than a privately held property. The property does not change owners but remains under the company’s ownership, which could protect the transaction from Stamp Duty, Inheritance Tax and Capital Gains Tax (CGT). This is useful if you plan to pass your business onto family in the future.

You Could Expand Your Portfolio Faster

Retaining profits within the company helps to protect you from tax liabilities because if you sell one of the buy-to-lets, you’re not making a “capital gain”. Instead, your business is making a profit. This could help you use more of your earnings to expand your property portfolio faster.

You Could Have a Limited Liability Company

If you own a limited liability company then you’re not personally liable for any debts held by the company, including those on buy-to-lets. However, bear in mind that you’re not absolved of the personal guarantees often required by your mortgage lender.


No Capital Gains Tax Allowance

When a limited company sells a property, no Capital Gains Tax (CGT) Allowance is given. An individual who sells a buy-to-let receives a certain allowance – i.e. an amount they don’t pay CGT on. If a private landlord sold their property within the 2020 – 2021 tax year or the 2021 – 2022 tax year, they would receive an allowance of £12,300. A private landlord would pay CGT on anything above the allowance.

You don’t pay CGT on buy-to-lets owned by limited companies. Instead, you’re subject to Corporation Tax when you take the profit out of the business. This means you’re not entitled to the allowance. Whether it works out better for you financially depends on how much profit you gain from the sale of your buy-to-let. 

The Additional Costs of Running a Limited Company

You’ll have to factor in new costs and tasks when you set up a limited company.

These costs and tasks tend to be:

  • The preparation of accounts – this is a legal requirement
  • Corporation Tax
  • Filing at Companies House
  • Legal fees
  • Annual auditing – if applicable

Accountants may also charge a higher fee when preparing accounts for Companies House.

Higher Mortgage Rates

Most lenders charge slightly higher interest rates and fees to limited companies compared to individual buy-to-let mortgages.

A Reduction in the Choice of Lenders and Availability of Mortgages

Not all buy-to-let lenders offer mortgages to limited companies and those that do tend to offer somewhat smaller product ranges.

As always we advise speaking with an accountant.

We hope you find this information of use.

Daniel James & Team

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