Should I set up a limited company for my buy to let property?

In these tough financial times it is important that buy to let property portfolio holders look at every option to reduce overheads and maximise returns. In this blog we look at the option of owning a buy to let property portfolio personally or within a limited company.

Buy to let property solicitors

If you have questions about your buy to let property portfolio ownership options call the buy to let landlord and property team at OTS Solicitors on 0203 959 9123 or complete our online enquiry form. Appointments can take place by video conference, Skype or by telephone appointment.

Buy to let property portfolio ownership options

Buy to let solicitors say that there is ‘’no one size fits all’’ when it comes to buy to let property portfolio ownership advice. It is therefore best to get individual advice looking at your personal and financial circumstances such as:

  • Whether you intend to purchase buy to let property  in your sole name or with a friend, family member or business partner

  • Whether you plan to purchase the buy to let property with mortgage finance

  • Your financial goals and requirements for income withdrawal

  • How long you plan to hold your buy to let portfolio and the potential for capital gains.

Should I purchase a buy to let property portfolio through a limited company?

Buy to let solicitors say that there is no easy answer to the question ‘’ should I purchase a buy to let property portfolio through a limited company?’’ That is because there are advantages and disadvantages with placing buy to let property within company ownership.

The advice you receive will also depend on whether you already own the buy to let property and are looking to form a company and draw up a shareholder agreement or if you are contemplating buying the buy to let property and forming a company to hold it in at the time of your purchase. That is because if you already own the property personally there may be stamp duty and capital gains tax considerations in relation to the property transfer. However, in your individual circumstances, those costs may be outweighed by the longer term benefits of holding your buy to let property portfolio within a company structure.

What are the advantages of purchasing a buy to let property through a company?

The advantages of buying a buy to let property through a company structure can be:

  • Depending on your financial circumstances, there may be significant tax advantages of purchasing a buy to let property within a company, especially if you are a high rate tax payer

  •  There are currently still some tax concessions on dividend income and rent can be drawn as salary or dividends if the buy to let property is owned by a company and you hold shares

  • If you don’t need the rental income and keep it in the company to invest in more buy to let property then you won't need to pay income tax on the rental income though you will need to factor in corporation tax

  • If you want to transfer ownership of a buy to let property owned by a company you can do this by completion of a share transfer form rather than the conveyancing process

What are the disadvantages of purchasing a buy to let property through a company?

The disadvantages of buying a buy to let property through a company structure can be:

  • If you need mortgage finance there is likely to be less lenders willing to lend and interest rates may be a bit higher

  • If you are not a 100% shareholder you will need a shareholder agreement in place to prevent disputes and to protect yourself

  • On the eventual sale of the buy to let property you will pay corporation tax on the profits

  • You will need to extract the rental income or the profits on the sale of the property by either receiving a salary or declaring dividends or, short term, using a director’s loan account. You may be able to reduce the family tax liability by putting some of the shares in the company in the name of a family member but you will need a shareholders agreement and other paperwork such as a family law agreement and Will.

Buy to let property portfolio general considerations

When you decide to invest in buy to let property it can be easy to forget the basics. Buy to let property solicitors say that this can be a very expensive mistake. Anyone who owns investment property should have:

If you jointly own a buy to let property with a friend, relative or other joint owner it is equally important that they have the above documents in place. If they don’t and, if they pass away, lose capacity or get divorced they could leave you in a difficult position. For example, would you want to jointly own a property with a new joint owner that you hadn’t chosen to go into business with, after the transfer of the part owned property or company shares, following the death or divorce of your original joint owner? Many of these problems can be foreseen and protected against with right buy to let property portfolio structure, paperwork and insurances.    

Buy to let solicitors

If you have questions about buy to let or landlord and tenant law then the landlord and tenant team at OTS Solicitors can help you find a solution. Call us on 0203 959 9123 or complete our online enquiry form. Appointments are available through video conferencing, Skype or telephone appointment. 

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