If you are thinking of purchasing a buy-to-let property, do not let the high taxes deter you from doing so. Buying through a limited company exempts you from exorbitant taxes. As a high-rate taxpayer, you will pay about 40% of your rental income in tax, but if you buy the rental property as a limited company, you will only pay corporation tax at 19%. However, before your accountant starts the paperwork, here are a few things you should know.
How to set up a buy-to-let limited company
The first thing you need to do is register a limited company with Companies House. You can choose to do it yourself or get an accountant or solicitor to do it for you. A limited company must have at least one shareholder and one director. You can fill both of these positions, but you can also choose to extend the share ownership to another person, e.g. your partner. You will also need to select a name for the company and provide an address. The address can be yours or your accountant’s office. When you are done setting up, the next step is to register for corporation tax through Companies House. Thankfully, you can do it online using your unique taxpayer reference [UTR].
Advantages of buying through a limited company
Tax benefits
As explained earlier, the main advantage of using a limited company to buy rental property is tax efficiency. In the past years, landlords were able to offset high-income taxes using mortgage tax
relief. However, this relief has significantly reduced since 2017.
Limited liability
Renting out your property as a limited company separates it from your personal affairs. This means that you will not be liable for any losses the property incurs.
Lower inheritance tax
In the case of your demise, your family members will pay reduced inheritance tax. However, they must be shareholders of your company.
Disadvantages of buying through a limited company
Higher mortgage fees
Lenders charge limited companies higher interest rates compared to individuals.
Stamp duty land tax
When transferring property from your name to that of the company, you will need to pay stamp duty.
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