Company buy-to-lets: The pros and cons

Feb 6, 2023 | Articles

Buy-to-let investments have been gaining popularity over recent years as more and more people look to take advantage of the potential financial benefits that this type of investment can offer. But are company buy-to-lets better?

In this blog, we’ll explore the advantages and disadvantages of investing in a company buy-to-let so that you can decide whether this type of venture is right for you.

What are buy-to-let investments?

A buy-to-let mortgage for limited companies is a way to get a mortgage on a property through a limited company instead of in your name.

Is buy to let worth it?

The pros and cons of buying a rental property in the name of a limited liability company.


Tax breaks

Private landlords who own their properties must pay income tax on rental proceeds. This is because rent money counts as personal income in the eyes of the HMRC. The revenue from your rental property may cause you to enter a higher tax bracket, increasing the amount of money you must pay in taxes if you also have another source of income.

Consider purchasing your investment property via a limited liability company to reduce your tax liability. That’s because a limited liability company’s rental revenue from its properties is taxed at the corporate rather than individual level.

Cash back for expenditure

Some costs, such as mortgage interest, could not be deductible if you are a private landlord. Your whole rental income, not just your profits, may be subject to taxation.

However, when a limited company owns a rental property, the rules for covering costs are different. This is because mortgage interest is considered a business cost for limited liability companies. Since a limited liability company allows its owners to deduct business expenses, it might be advantageous to hold rental properties in its name.

Asset protection

To safeguard your financial interests if your new real estate venture fails, forming a limited liability company is a good idea. This is because directors of limited businesses are protected from personal culpability.

For example, if you have buy-to-let properties valued lower than the mortgage you’ve taken out to fund it, or if interest rates increase and make it impossible for you to make your mortgage payments, your lender may decide to repossess the property. If this occurs, you will suffer a loss on your investment, but the bank will be unable to seize any of your non-business assets.


Landlords pay personal taxes on company withdrawals

While corporation tax may be lower than income tax, if you wish to utilise the money you make from a buy-to-let property, you’ll need to withdraw funds from the limited company, and they may be subject to personal tax as well. Therefore, in addition to paying personal tax on income or dividends, an investor may also be paying corporate tax via the limited business.

No allowance for Capital Gains Tax (CGT)

Limited businesses are not eligible for CGT allowance on gains when selling a home.

Increased administrative expenses

A limited company is a distinct legal body, and although forming one at Companies House costs just £12, doing so entails a lot of obligations, including reporting and accounting. These duties will cost money to outsource.

Transferring property to a limited company is costly

There are expenses associated with moving an individual’s current properties into a limited corporation. As the owner of the property changes, Stamp Duty Land Tax, legal fees, and maybe Capital Gains Tax may apply. Therefore, before making a move, it is advisable to consider these charges and consult a competent counsel.

The Bottom Line

In conclusion, buy-to-let property has its advantages and disadvantages. On the one hand, tax breaks, cash back for expenses, and asset protection are advantages of this type of property investment.

On the other hand, personal taxes on company withdrawals, no allowance for Capital Gains Tax, increased administrative expenses, and transfer costs make this type of investment less attractive. Ultimately, whether a company buy-to-let is worthwhile will depend on the individual investor’s specific circumstances, needs and goals.

At Murphy Thompson Moore, we understand that setting up a buy-to-let company is not easy. That’s why our team of experts can provide you with the advice and support needed to get your BTL business off the ground.

Our combined package offers everything from advice on how to ensure your company meets lender requirements to bank introductions. With years of experience in the industry, our team is here to make sure you get the most out of your BTL venture. So, get in touch today and let us help you take your business to the next level!

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