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Buying property through a Limited Company
One of the questions we often get asked by our Buy to Let investors is: Should landlords buy property through a Limited Company?
Buy to Let investors have to pay 3% extra Stamp Duty tax on additional purchases. And, tax relief on mortgage interest payments is now a flat rate of 20%. On top of this we have the pressures brought about by the Covid Lockdowns. It is understandable that property investors are looking for ways to reduce their financial liabilities.
Below we explore some of the key financial and practical considerations if you are thinking about buying property through a Limited Company.
We would always recommend you explore your options fully with your Accountant or a Tax Expert to ensure you make the right decisions for you. Running a limited company is a long term commitment and it benefits from careful planning and number crunching.
Why should I consider setting up a Limited Company?
The key benefit choosing to buy through a Limited Company will proffer you is through potential tax savings. This can be significant especially for higher rate tax payers.
If you incorporate your Buy to Let business as a Limited Company, you won’t pay income tax on any profits you make. Instead you will pay Corporation Tax which is currently 19%. You can then choose how you extract any profits through a blend of salary, dividends and directors’ loan repayments.
Added to this, with a limited company, you can offset all of your mortgage interest against any profits from rental income.
Another advantage is a reduced personal liability. As a Company Director rather than a Sole Trader, if the company gets into financial trouble your personal assets won’t be at risk.
What are the downsides of setting up a Limited Company?
One of the main downsides is the increased bureaucracy involved with incorporating. You will have to keep meticulous records and keep your books up to date. You’ll also need to file an annual return to Companies House, together with updated memorandum and articles of association.
You’ll need to pay a set up cost for launching a limited company. And, annually you’ll need to pay for your books to be completed, your tax return for corporation tax purposes, and your annual accounts to be filed with Companies House.
Another consideration is with regards to any existing properties. You will need to consider transferring any existing properties to your new Limited Company. Effectively, the Limited Company will need to purchase these from you which can generate costs such as Stamp Duty Tax, Capital Gains Tax and Legal Fees.
Essentially, incorporation is a huge commitment. And it is vital you crunch all the numbers with your Accountant or Tax Adviser before leaping in.
Will I have access to the same Mortgage products and rates?
Generally speaking, you won’t find many lenders on the high street who will lend to Limited Companies. So, your choice of mortgage deals probably won’t be as wide as if the purchase was through an individual.
However, lenders are aware of the tax advantages of holding property within a company. There are several mortgage products on the market specifically designed for property letting companies. You can access these by speaking to an experienced Mortgage Adviser like Your Mortgage Expert.
How can Your Mortgage Expert help?
Our team of advisers are experts in advising on Buy to Let Mortgages for Limited Companies. We understand which lenders offer Limited Company Buy to Let mortgages and we know which lenders are more likely to consider your Company situation.
Whether you are looking for ways to save money by remortgaging your existing loans or looking to purchase additional property, we can help. Contact your adviser who will have access to a range of Buy to Let mortgages by searching the market. This means we can get you the deal so ultimately you receive the best returns from your investment.
Our clear and impartial advisers will help you plan your portfolio by understanding your strategy both now and in the future. They’ll look at both your aspirations and exit strategy – then they’ll work out a mortgage payment plan designed for individual needs.
Contact us to find out more about how we can help. We don’t charge for an initial consultation, so by speaking with us for mortgage advice, you won’t be under any obligation.
There is no guarantee that it will be possible to arrange continuous letting of the property, nor that rental income will be sufficient to meet the cost of the mortgage.
Your property may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances. The fee is up to 2% but a typical fee is 0.6% of the amount borrowed.
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Max and Martha, First Time Buyer customers from Cardiff
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Andrew and Helen, Armed Forces Mortgage Customers from Salisbury
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Fiona and Graham, Armed Forces Mortgage Customers from Wilton
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Andrea, Contractor Mortgage Customer from Warminster
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Matt, Contractor Mortgage Customer from Southampton
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Hannah and Steve, Protection Insurance Customers from Stamford
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Mike and Bethan, First Time Buyer Mortgage Customers from London
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Chris, Help to Buy Mortgage Customer from Southampton