Look before you leap into a limited company arrangement – landlords are warned

News Article

Buy-to-let landlords who are considering transferring their property interests into a limited company set-up, would be well advised to carefully weigh up the pros and cons of doing so before taking such a step.

Many landlords have already taken the decision to set up a limited company because of the tax efficiencies available to them.

Overall, buy-to-let loan applications made through limited companies increased at the end of 2016. According to the latest figures from Mortgages for Business, 69 per cent of total purchase applications made in the fourth quarter of 2016 were made through limited companies, a rise of 6 per cent on the previous quarter.

According to Alistair Hargreaves of mortgage broker, John Charcol, landlords can benefit from advantageous tax rates that can be less than high rate income tax and capital gains tax rates which could apply if property is held by an individual.

“Those who hold property in limited companies will also be unaffected by the tax relief changes coming into force in 2017, meaning that buy to let lenders may continue to offer lower rent stress tests and improved lending affordability to such landlords,” he said.

However there are also drawback to using a limited company, for example, no capital gains tax (CGT) allowance when a property is sold, whereas individuals selling a property would have £11,100 CGT allowance.

There are also additional costs of running a limited company such as the preparation of accounts, company tax and corporation tax calculations for HMRC, along with filing at Companies House.

Matthew Johnson, a solicitor with Palmers who specialises in company formations, said: “There are certainly benefits available to landlords who wish to transfer their business interests in this way but a lot of factors will determine whether or not this is the right course of action for you and will depend largely on your individual circumstances and the property portfolio you have in place, together with any future plans you may have for growth. If this is something you are considering then, along with your accountant, we can work with you to provide professional advice which will provide you with a way forward which will suit your particular business needs.”

For help and advice on buy-to-let landlord legal matters and advice on all aspects of company formation, please contact us.