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  • Writer's picturePat Harper

Should I Purchase a Buy-to-Let Into a Ltd Company?

Updated: Apr 4

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Are you thinking about purchasing one or more investment properties in the UK? If so, you could be considering your investing options and asking if forming a limited company is the best option. Limited companies come with some fees as well as certain advantages including liability protection and potential tax advantages.

We will go into the specifics of purchasing property through a limited company. We will discuss the fundamentals of a limited company and how it differs from other business forms. We'll also examine the tax repercussions and potential advantages of investing in property through a limited company. We'll also go over how to get a buy-to-let (BTL) mortgage through a limited business and offer helpful tips for both UK residents and non-residents.

This article will give you the knowledge you need to make an informed choice, whether you're an experienced investor or a beginner looking to purchase your first investment property. To make sure you set up your assets properly from the beginning, we'll help you analyse the advantages and disadvantages of investing in property through a limited company.

What is a limited company?

If you are considering buying an investment property in the UK, one option to consider is setting up a limited company. A limited company is a type of business structure that separates the company and its owners in the eyes of the law. This means that the owners are only responsible for the company's debt up to the amount of capital they have invested. There are approximately 4 million limited companies registered in the UK so it's currently a popular choice for people looking to invest in property.

Setting up a limited company is easy - simply register at Companies House and you're on your way. But before you make a decision read on to ensure a limited company is the right choice for your investment property.

Can I purchase an investment property in my personal name?

There are various laws to consider when buying investment property

Are you considering investing in property in the UK but are unsure whether you should do so personally or through a limited company? A recently adopted tax rule known as "Section 24" is something to take into account, which specifies that properties owned in personal names are not allowed to claim financing costs (such as mortgage interest payments) as an expense. Instead, a tax credit equal to 20% is used to lower your tax obligation.

If you pay taxes at the basic rate, there probably won't be a problem. You'll pay income tax at a rate of 20% and get a tax credit on your finance charges at a rate of 20%, which cancel one another out. However, purchasing an investment property in your personal name may be more expensive if you are a higher-rate taxpayer. You must pay at least 20p in tax for every £1 of interest paid to your mortgage lender. This means that if you buy an investment property in your own name, you will have to pay more in taxes on your financing costs.

What are the tax benefits of investing in property through a limited company?

If you're considering investing in property in the UK, forming a limited company may provide tax benefits. For example, if you own an investment property in your own name, you may not be able to deduct financial expenses such as mortgage interest payments. However, if you use a limited company, you can still deduct those expenditures to reduce your taxable income. Furthermore, purchasing property through a limited company allows you to keep your personal and investment accounts distinct.

In addition, acquiring an investment property through a limited company may allow you to take advantage of corporation tax. Corporation tax is typically paid at a rate of 19%, which is lower than the upper band income tax rates of 40% or 45%. That means that purchasing property through a limited company might save you a significant amount of money in taxes as compared to purchasing in your own name.

When considering purchasing an investment property, it is critical to explore all of the aspects that may affect your investment, including potential tax ramifications. So, if you're thinking of investing in property or acquiring a rental property in the UK, it could be worth investigating the option of doing so through a limited company. Continue reading to discover more about what to consider when purchasing an investment property.

Weighing the Pros and Cons: Making an Informed Decision on Limited Company Investment

Understand the pros and cons and what to look for when buying an investment property

You will likely want to utilise a buy-to-let (BTL) mortgage when purchasing an investment property.

It's important to keep in mind that the interest rates on a BTL mortgage may be a little higher if the property is owned by a limited company when compared to if it was held in your personal name.

Despite this, due to the possible tax advantages, purchasing a property through a limited company might still be an excellent financial move. Limited companies can pay less tax than individual ownership since they can deduct mortgage interest payments as an expense.

How do I set up a limited company for investing in property if I am UK based?

How to buy an investment property as a UK citizen

The next step is to set up your firm if you've determined that investing in property through a limited company is the best option for you. There are a few possibilities for forming a limited company if you live in the UK.

Hiring an accountant to manage the procedure for you is one option. If you don't know how to do it yourself or don't have the time, this may be a viable option. The paperwork may be managed by an accountant, who will also make sure that everything is registered and filed correctly.

A different choice is to create the corporation on your own via the Companies House website. Although this procedure can be a little more complicated, it is often easy to follow and can be finished rather fast. Use the SIC code 68209 when forming a limited company with the intention of acquiring, owning, and leasing property. On the Companies House website, you may get more details regarding the SIC code and the business registration procedure. Within a few hours of submitting your application on the Companies House website, your business will be founded and registered.

Can I invest in property through a limited company as a non-resident?

Is buying rental property a good investment for non-residents?

It is possible to purchase a rental property in the UK even if you are a non-resident. Although there may be some extra factors to take into account, the process for establishing a limited company from outside the UK is comparable to the one for UK citizens.

Getting a UK business bank account expressly for your limited company is a crucial consideration. Check with your bank to understand their criteria since some banks may demand you to have a UK phone number when opening the account.

It's a good idea to get in touch with a specialist with knowledge in this field if you have any queries or worries about forming a limited business while not a resident in the country. They may assist ensure that the procedure runs well by offering helpful advice on the precise actions you must take.

Purchasing an Investment Property Through an Existing Limited Company

As long as the business is legally incorporated and complies with the mortgage lender's standards, it is often feasible to purchase an investment property through an existing limited company. One thing to note is mortgage lenders could have certain specifications for limited corporations used to acquire buy-to-let properties.

One typical stipulation from a lender is that the business's bank account only be used for buy-to-let transactions.

Mortgage lenders favour simplicity in general and may inquire if they see transactions on the business's bank statement that are not typical buy-to-let activities. Being open and honest with your lender and making sure your company is set up is important to prevent future problems.

Can I transfer my existing investment property to a limited company?

There are potential tax repercussions of transferring ownership of an investment property you have previously purchased in your own name to a limited business. This is because the transfer is classed as a sale.

First of all, you might have to pay capital gains tax on any uplift in value. Secondly you might have to pay stamp duty land tax when your business buys the property.

The financial advantages of shifting ownership of the property to a limited company may be greatly diminished by these taxes. As a consequence, before making a choice, it's crucial to thoroughly weigh the advantages and disadvantages of such a relocation.

It's a good idea to consult with a specialised property tax accountant to have a better grasp of the unique tax ramifications of transferring ownership of a property to a limited company.

Do I need an accountant?

Tax is just one of the things to know when buying an investment property

Investing in property is a significant choice that calls for serious thought and preparation.

In general, if you're considering investing in property through a limited business, you should hire an accountant. Although you are allowed to prepare your own self-assessment tax return for the business, an accountant may offer helpful advice and aid you in navigating the many paperwork and procedures involved.

Accountants may also help you organise your investments in the most tax-effective way and offer useful insights into tax-saving measures. You may maximise your investment return and make sure you are in compliance with all applicable tax rules and regulations by working with an accountant.

Nevertheless, engaging an accountant is optional. Employing an accountant is a personal choice that is based on your unique requirements and circumstances. You might not need to engage an accountant if you feel confident managing the paperwork and procedures yourself. However, it's typically a good idea to think about working with an accountant if you have questions about the procedure or would need more direction and help.

Hi, it's Pat Harper - Director of TPG.

Even if you're a first-time or a seasoned investor, finding the right property can be overwhelming!

Investment properties can be a source of income, which can help you achieve your financial goals.

Learn how to invest in property using my knowledge, skills, and experience.

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