Should Buy-to-Let mortgages be set-up through a limited company?

While the Buy-to-Let rental market has been impacted by many macroeconomic factors such as base rate rises, cost of living crisis and others, it still seems that 2023 will hold plenty of market activity for property investors and landlords.

Over the past few years, we have seen a rise in the number of Buy-to-Let limited companies set up in the UK, with an estimated figure of 50,445 limited companies being registered in 2022, which was a 6.4% increase from the year prior.

For those with Buy-to-Let properties, whether it be a single property or is a professional landlord with multiple rental property assets, signing up as a private landlord or limited company will have an impact on the profitability of the let property.

Shutterstock_135735296Should Buy-to-Let mortgages be set-up through a limited company?

What are the differences between Buy-to-Let properties under limited companies or as a private landlord?

A limited company is a legal entity separate from the responsibilities of the business owner(s) or shareholders and the business itself. Although the Directors/Shareholders may be required to give personal guarantees of the lending facility granted. Limited companies operating in the UK must be registered at Companies House.

Property investors may choose to secure Buy-to-Let mortgages under a limited company as it can offer some benefits such as rental income being taxed differently in comparison to Personal Income tax which arises from personal ownership.

What are the benefits of Buy-to-Let properties being under limited companies?

Improved tax efficiencies:

  • No rental income taxWhen a property owner is listed as a private landlord, rental income generated is viewed by HMRC as ‘personal income’ and therefore will be taxed as so. 

    This means, if the property owner has another income stream through full or part-time employment, overall income could exceed a higher threshold meaning that they are liable to higher taxes.
  • Corporation tax for Limited CompaniesWhen a property is registered through a limited company, it becomes subject to Corporation Tax instead of personal Income Tax. Currently, this type of tax stands at 19%.

Claiming back expenses:

By securing a Buy-to-Let rental property through a limited company, certain expenses such as mortgage interest are classed as business expenses. Contrastingly, private landlords would not be able to claim back any business expenses and therefore could be subject to tax on full rental income.

Separate from personal assets:

As a rental property is registered under the limited company and not through a personal name, a lender may choose to not take this investment into account when evaluating an individual’s commitments for personal borrowing.

In fact, the Buy-to-Let property may be included as additional income during an individual’s application form.

Change of Ownership:

The rental property is registered through the limited company, rather than an individual, meaning the companies director or shareholders can be changed through the company. This will mean if a shareholder steps down or is bought out, and a new person comes in, they will inherit the shares to the company and consequently the property.

This can be helpful when a new partner wants to come in to help expand the portfolio. This process can be more straightforward compared to changing ownership of the property through a sale or a transfer of equity with a mortgage lender.

What are the challenges of Buy-to-Let limited companies?

No Capital Gains Tax (CGT) allowance when the company sells property

Buy-to-Let properties listed through limited companies will not be eligible for Capital Gains Tax (CGT) allowance, as it is only for individuals who are trying to sell Buy-to-Let properties and/or other assets. In the 2022/23 tax year, the allowance sits at £12,300 meaning when the sale of property is complete, individuals are not taxed on any profits until they go over this threshold.

For limited companies, there is no CGT allowance and therefore are subject to Corporation Tax, meaning any equity gains on sale of property is directly taxed.

For some investors, it may be more suitable to secure rental properties through limited companies as Corporation Tax may not be as costly as being a private landlord. This however is not always the case, and individuals should speak to an expert to go through the most suitable options.

Property transfer costs

If someone wants to transfer existing properties to a limited company, they could incur costs such as Stamp Duty Land Tax, potential Capital Gains Tax, legal costs, and potentially higher rates.

Additional administrative duties

Limited companies must report to HMRC, completing Annual Returns and Company Accounts reports. While this is not necessarily a disadvantage, this is something an investor should consider when trying to register Buy-to-Lets through limited companies.

An accountant or expert adviser may be required in order to meet the company requirements, which of course is an additional cost to consider.

How West One can help?

If you are considering a Buy-to-Let mortgage to secure property and are unsure whether to do so as a private landlord or through a limited company, speak to a qualified tax adviser to understand which is most suitable for your client.

Our buy-to-let offering aims to serve the wide-ranging needs of both amateur, and professional, landlords.

We lend on a wide variety of property types to a broad range of borrowers, whether borrowing in individual names or through a limited company. Our expert team are committed to delivering cases with speed and flexibility. We apply an individual approach to underwriting to ensure we review each case on its merits, ensuring we support clients with the smooth and secure purchase or re-mortgage they require.

West One offers a comprehensive range of products through our Standard and Specialist Product ranges which are exclusively available through mortgage intermediaries.


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