Tax Planning

Is putting buy-to-let properties into a Limited Company tax-efficient?


Louise Misiewicz

Tax Consultant

18th January 2018

Article relevant to the tax year 2017/18

Should property investors put their buy-to-let portfolio into a Limited Company structure in 2018 to be more tax-efficient?

I was having a review meeting with a property investor client yesterday, and the subject of whether putting buy-to-let properties into Limited Company structure is more tax-efficient or not during 2018.

One of my immediate responses to the investor client was that to state a blanket rule does not apply for all property investors, and each individual portfolio needs a bespoke approach in regard to tax planning.

Our team of property tax experts are on hand to best advise our clients on how to mitigate tax, increase their property portfolio in structured and safe ways, as well as advising on other related matters such as inheritance tax liability, property tax legislation, and wealth management measures for the tax year ahead.

Some of the key considerations if you’re a property investor or investment landlord considering how to protect your portfolio, as well as how to increase your buy-to-let portfolio is whether the structure of your property business is geared up to deliver the most tax-efficient return possible for you, year-on-year.

This sounds like an obvious point, but I’ve worked with countless buy-to-let investment landlords who have lost considerable amounts of money before visiting me by not putting their buy-to-let properties into a Limited Company structure for greater property asset growth.

Section 24 Mortgage interest relief cap

In the Summer 2015 Budget, changes to mortgage interest tax relief were announced, which are taking effect from the current 2017/18 tax year. In essence, the biggest change for buy-to-let landlords is that they can no longer deduct all of their mortgage interest when calculating profit.

Furthermore, property landlords who own their properties in their own name will now be taxed on turnover, and not on profit. So, is now the time, as my buy-to-let landlord client was asking me, to explore acquiring new buy-to-let properties within a Limited Company structure, where the interest costs are still allowed to be deducted from turnover before profit is calculated?

We have written a more detailed article about how Section 24 mortgage interest relief will affect property investors and landlords. We have also created a spreadsheet calculator that you can download for free to see how Section 24 will affect you.

Considerations before setting up a limited company as a property investor

I advised my property investment client to consider the following areas before deciding to set up a Limited Company as the main purchase vehicle of new buy-to-let properties in 2018:

  • What is the tax status of the individual – lower or higher-rate tax payer?
  • Does the individual have any existing buy-to-let properties to consider?
  • What future plans does the property investor have to grow the portfolio?
  • What are the mortgage options available to them such as paying them off?
  • If a new purchase is a short-term investment, are other options available?
  • Are there basic rate tax payers in the family that could be allocated the property income?
  • Are there any properties that could be sold?

We have written a more detailed article as to the reasons why property investors should not incorporate their property business. This gives a balanced approach.



Download our tax-efficient property investment guide for 2018 here


Pros and cons of using a limited company as a property investor / landlord

When considering putting buy-to-let properties into a Limited Company structure, some of the main benefits are as follows:

  • Mortgage interest relief is still available, and will be offset against future turnover before profit is calculated.
  • The structure allows a property investor to keep personal and business income separate.
  • New shareholders can be added to the company, giving the opportunity for efficient tax-planning.
  • The rental stress-tests for Limited Company buy-to-lets allow for more generous lending amounts.

However, some of the challenges of putting property portfolios into Limited Companies include:

  • There are a limited number of lending options available to a Limited Company.
  • Mortgage interest rates for Limited Companies are less competitive than personal mortgages.
  • A Limited Company has annual running costs, including accounts and compliance to Companies House.
  • Extraction of profits from a Limited Company is more structured and controlled than in a private format.
  • Lenders might not be willing to lend to an existing property-related Limited Company that already has mortgages with other lenders. There are also a limited number of lenders in the current UK marketplace.

It is worth reading our detailed article if you are looking to use a limited company and want to find out ways of extracting cash out of it in the most tax efficient way.

It is also worth remembering that following recent PRA changes, lenders have brought in new rules for personal buy-to-let mortgages, meaning that they now assess the individual’s tax banding before calculating the maximum they will consider lending.

It remains critical, as I reminded by buy-to-let landlord client, to seek professional financial and property tax advice at the earliest opportunity when considering setting up a Limited Company business structure.

Some of the other most common questions that I get asked by property investor clients include:

  • How long do I need to live in a house to avoid Capital Gains Tax?
  • Why use a Limited Company loan to another Limited Company?
  • When should I put property into a Limited Company structure?
  • How do I avoid Capital Gains Tax on buy-to-let properties?
  • What are the tax benefits of Gifting UK properties to children?

I’ve written a number of useful and informative articles which will help address and answer many of the issues above. These articles can be reviewed in full below:

Wealth management and tax planning for property investors

Inheritance tax planning – getting the basics in place

Limited Company: the best structure for tax planning?

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