Complete 2023 Guide.

Putting Property
Into A Comapny

View The Complete Guide

After years of tax changes to real estate, more and more investors are choosing to buy property through limited companies.

In fact, a report in 2021 found that there was a record number of new companies set up by buy to let landlords.

But why is this the case, and should you consider doing it yourself in 2023?

In this guide, we will discuss putting buy to let property into a company and the advantages involved.

Other topics include:

  • Should I Set up a Limited Company for Buy to Let?
  • Transferring Property Ownership to a Limited Company 2023
  • Gifting Property to Limited Company
  • Limited Company Buy to Let Allowable Expenses
  • How to Transfer Property Ownership to a Limited Company 2023
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Benefits of Putting Buy to Let Property Into a Limited Company

With around 41,700 buy to let incorporations in 2021, it’s clear that putting buy to let property into a limited company is a popular choice for many.

But what makes buying property with limited companies so ideal?

Well, there are currently three strong reasons why you might want to consider securing a buy to let with a company in 2022.

1.Save Thousands When You Pay Corporation Tax

Likely the biggest advantage of buying rental property through a company is the tax savings on offer.

While individual landlords pay income tax on their rental income, which can range from 20-45% depending on what tax bracket you fall under, those putting buy to let property into a limited company are instead subject to corporation tax.

This is incredibly beneficial for companies, as the corporation tax rate is currently a flat 19% – although this is set to increase to 25% in 2023.

Although this isn’t a huge saving for a basic rate taxpayer, for a higher rate tax payer this can save landlords thousands by paying corporation tax.

While there are some caveats to this – with companies taxed for accessing their rental income earned from rental property – it does show clear tax savings available from income tax, allowing landlords to extend their purchasing power and make more property purchases in the long run.

2.Can Claim More Mortgage Interest Relief

Alongside being tax efficient for profits, companies also have an advantage with buy to let mortgages.

Previously, private landlords were able to deduct mortgage expenses from their rental income to reduce their income tax bill.

However, after years of tax changes this is no longer the case, with individual investors now receiving a tax credit based on 20% of their mortgage interest payments.

It gets worse for those in the higher tax brackets, with more higher and additional tax payers unable to get all their tax back on mortgage payments. This is because the tax credit only refunds income tax at the basic rate.

Not only this, but landlords could even find themselves pushed into higher tax brackets than expected, as the income used to cover the cost of mortgage payments needs to be declared on your tax return.

This is not the case for investment companies, with limited companies able to treat mortgage interest as a business expense, meaning you can deduct the costs before paying corporation tax.

Again, this allows companies making buy to let purchases to extend their purchasing power with more personal income to expand their property portfolio.

If you want to learn more about buy to let mortgages and investment mortgage contracts, be sure to seek professional advice to discuss your own circumstances with an expert.

3.Gifting Property is Easier With a Limited Company

For many landlords, the ability to pass on your property to your loved ones and family members is a compelling option.

However, this can get complicated, with the amount of tax payable changing between the type of property your transferring, and the person you’re transferring the property to.

With inheritance tax proving costly for loved ones, many landlords are now choosing to gift property to a family-owned company, in the hope of making it easier to pass on their estate.

This is certainly possible and comes with two main benefits:

  1. Family members can earn money from the property as shareholders. This means they will have direct access to any rental income earned from the real estate through dividends.

Gifting property into a limited company owned by family means that the control of the rental property can be retained if you make a shareholders agreement.

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Disadvantages of Putting Buy to Let Property Into a Limited Company

1.No Capital Gains Tax Allowance

Often the number one goal for many landlords and investors is to sell their real estate several years down the line for a profit, otherwise known as a capital gain.

However, for those selling property as a company, capital gains can be a bit more complicated.

This is because limited companies don’t pay capital gains tax, and instead just pay corporation tax.

As a result, companies don’t have access to the capital gains tax allowance held by individuals every tax year, which is usually £12,300 per person, but can be combined with a spouse co-owner up to £24,600.

The bottom line is that depending on the amount of potential gain, it’s likely that you will be stuck with a bigger tax bill when tax planning as a limited company.

2.Taxed When Taking Money Out of Company

Landlords putting buy to let property into a company will also encounter further tax when getting income.

Unlike individual landlords who can simply earn rental income directly, money earned as a company can’t be taken out so easily.

Instead, landlords who own a buy to let company have two options.

  1. You can take the money out as a dividend. However, only the first £2,000 is tax-free. For dividends above this threshold, you will pay a dividend tax. The dividend tax bands are a 7.5% charge as a basic rate taxpayer, 32.5% for a higher rate taxpayer, and a 38.1% charge for additional rate taxpayers.
  2. You can take money out as salary. However this also has an impact on costs, as your company will need to operate PAYE and will also pay national insurance contributions on the salary. Moreover, you’ll also pay income tax on the salary earned, which will count as a cost when you calculate your pre-tax profits to determine your corporation tax owed.

As you can see, if you need to live off your rental income earned from property investment, it’s best to speak to a financial adviser to determine whether your property company or property business will be cost effective for you.

3.Can’t Easily Put Buy to Let Property Into a Limited Company

If you’ve already purchased some properties under personal ownership and now want to switch over to a company, you may encounter some obstacles.

Unfortunately, putting buy to let property into a company isn’t as simple as signing them over. Instead, you’ll need to sell the property to the company, which will incur several charges.

  1. Capital Gains Tax – If the market value of the property has increase, you’ll need to pay CGT.
  2. Stamp Duty Land Tax – As your company is buying the property, it will be liable to pay stamp duty on the purchase price. Remember, also, that those buying a second home pay an additional 3% charge on top of normal rates.
  3. Legal Fees – Other costs can include the legal fees, such as paying a conveyancer to transfer ownership. Conveyancing fees can be anywhere from £400 to £1,500.
  4. Mortgage Costs – If you have an outstanding BTL mortgage on the property your transferring, you may have to pay an early repayment charge.

This is why, depending on the number of buy to let properties you already own, there may be little point in transferring them over to a company, as the costs involved will likely exceed the benefits.

4.Extra Finance Costs Involved

As you can tell, owning property via a limited company can welcome some additional charges.

Not only do you need to contend with the initial costs of buying a property under limited company ownership, but you’ll also need to deal with tax consequences for rental properties.

But there are even more extra costs when securing property through a limited company.

Limited companies will need to file annual accounts, which will likely mean paying for an accountant.

During ownership, you will also need to do plenty of administration and paperwork, which can be difficult for new owners.

5.Finding a Limited Company Buy to Let Mortgage Can Be Hard

As an individual landlord, you’ll need to secure a buy to let mortgage to finance your real estate purchase if you don’t have the cash.

However, this can get complicated for limited companies as the number of available buy to let mortgages is far less.

This is mainly because mortgage lenders see limited companies as more of a risk than an individual, which could result in higher interest rates once you do find a mortgage.

You could also have to pay a bigger deposit, with loan to value percentages lower than an individual landlord ranging from 65% to 70% depending on if it’s a repayment mortgage or interest-only.

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Should I Purchase Buy to Let Through Limited Company or Personal Ownership?

There’s no clear answer whether you should set up a limited company as it will depend on your own personal circumstances.

If you plan on owning several buy to let properties in the future, then a limited company may help you increase your profits through tax savings.

However, if you already own several properties and want to set up a limited company, the costs involved in transferring ownership may outweigh the costs.

That’s not to mention the additional difficulties and responsibilities of owning a limited company.

Overall, setting up a limited company can offer more tax advantages than being an individual landlord, but it will depend on how many properties you own. Be sure to seek professional advice to determine whether this is the right option for you.

Got questions?
Well, we’ve got answers

The government outlines how to set up a limited company in 6 steps.

  1. Choose a company name
  2. Choose directors and a company secretary – A director is needed but a company secretary is not.
  3. Appointment shareholders or guarantors – you’ll need at least one, who can also be a director.
  4. Identify those with control over your company – Those with voting rights or who own over 25% of shares.
  5. Prepare a ‘memorandum of association’ and ‘articles of association’ – These will essentially agree how you’ll run your company.
  6. Identify records you need to keep
  7. Choose an address and SIC code to register your company

You can learn about all these points in more detail on the government website.

Yes, you can still borrow money and secure a buy to let mortgage as a company. However, keep in mind that buy to let mortgage availability is lower for limited companies, can charge higher interest rates, and can command a higher deposit.

Setting up a company as a first time buyer can be a good idea if you plan on building up a massive property portfolio. This is because you’ll likely save thousands on taxes. However, if you only plan on renting out two residential properties, it may not be worth the hassle involved.Please note: you should purchase a regular license for every domain.

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