Transferring your Buy to Let Properties to a Limited Company

You are probably aware of the surge in people buying properties through Limited Companies with the intention of renting them out. Many landlords are considering whether incorporating their existing property portfolios might be of benefit to them.

But why is this?

Following Section 24 of the Finance Act 2015 coming into force in April 2017, landlords are only able to claim a 20% deduction on their finance costs when calculating their annual tax liability - they can no longer claim mortgage interest and other finance costs from their rental income as an expense.

This is why many landlords are looking at the benefits of transferring their property to a Limited Company..

The advantages of transferring from Buy To Let to a Limited Company

One of the main benefits is the tax relief this can offer. Firstly, the restrictions on mortgage interest relief don’t apply when it comes to Limited Companies, with it being possible to deduct mortgage and finance costs from your company profits, thus claiming mortgage interest as an expense against the profit your company makes.

There are also other tax benefits you can take advantage of:

• Profit through a limited company is subject to a lower rate Corporation tax (at 19% for the 2021-21 financial year) which is much lower than Buy To Let income tax at the highest rate - 40-45%.
• Funds after tax can be retained as ‘reserves’ and later reinvested into properties. This can be paid out as dividends, or used to top up director pensions.
• Landlords can add their spouse (for example as a non-executive director or shareholder) for further tax benefits.
• Inheritance Tax planning and efficiency is much simpler when it comes to Limited Companies.

There are also significant benefits with Stamp Duty, where landlords have the option to sell the company instead of the property. This makes purchase much more appealing for potential buyers with Stamp Duty on shares being only 0.5%.

Another important benefit of a Limited Company is that you can enjoy the safety net of having a separate legal status. Your Limited Company is considered as a different entity from your personal assets, lessening the risks if you run into financial difficulty and offering limited liability protection for landlords.

How do I set up a Limited Company?

It’s a straightforward process, although we always advise that you seek professional advice as getting things right in the early stages of a new venture can prevent issues further down the line!

You need to register with Companies House – the process of registration is called incorporation. This can be done online or via post. While registering, the following details will be required:

• The complete name and address of the business
• The name and address of company directors
• The name and address of the company secretary (if appointed in-house)
• Shareholder details and Share Capital

There are two types of Limited Companies, a Public Limited Company (PLC) which has the option to offer shares to the public, or a Private Limited Company (also a PLC!) which can be run with one member, and is unable to offer shares to the public.

DNS Accountants can both assist with the registration process on your behalf, and advise you on which options will be best for your situation. For a free and no-obligation consultation, please just get in touch!

10 Reasons to Buy Property Through a Limited Company

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.