Should I Go Limited?

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.