In recent years, more and more landlords have choosen to run their portfolio through a limited company. There are pros and cons to this strategy, and you should always seek professional advice; what's right for you will depend on your individual circumstances. Here's a quick guide.
What is a property company for buy-to-let?
Landlords can operate their rental properties in one of two ways; as an individual therefore paying income tax, or through a limited company therefore paying corporation tax.
If you choose a limited company, your rental income is treated in a slightly different way, as it belongs to the company. You can pay yourself a salary, receive income as a dividend (a share of the profit), or a mixture of the two.
Bear in mind there will be extra admin involved in setting up and running a company.
Benefits of Setting up a Limited Company
Owning a property through a limited company allows you to pay corporation tax, which is generally lower than income tax
Transferring property between companies could mean you don't need to pay stamp duty, inheritance tax, or capital gains tax, which could save you money
Restrictions on buy-to-let mortgage interest tax relief don't apply to limited companies
You may benefit from greater legal protection due to the 'limited liability' nature of a company, this means that you are only liable for the money you put into the company when it was incorporated
Drawbacks of a Limited Company
There are more responsibilities on company directors, such as filing accounts and annual returns
It can be harder to get a buy-to-let mortgage for a limited company, although the number of products available has increased in recent years
There are costs for switching to a company, and if you take profits out you'll be liable for income tax
You will need to take specialist advice from a broker or accountant, which may cost more and take longer
Ultimately, whether or not you could benefit from using a limited company will depend on a number of things, including:
What rate you pay income tax at
Whether you make a significant profit from your rental income
How much profit you expect to make if you sell your property
Whether you intend to pass your property on and benefit from inheritance tax relief
Before you make any decisions, speak to a financial expert. Doing your own research will also greatly increase your knowledge on the subject.
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