Setting Up a Limited Company for Your Buy to Let

Posted by Vidit Agarwal on October 13th, 2021

Buy to let is a phrase that means the purchase of a property for letting out and earning through it.

Buy to let property is a property acquired for the purpose of earning profit by letting it out. Investment in buy to let has gained popularity among the investors as it provides an easy way of earning income and also provides them with a possibility of a hike in their income with the rise in rates of letting out.

Pros of Investing Through a Limited Company

Potential investors see a number of benefits arising out of investment in a buy to let as a limited company.

• The various advantages they could see are:-
• Tax payable through a limited company will be much less than what is charged to an individual investor.
• Tax free dividend allowance of £5000 is granted.
• No tax is charged for reinvesting the profits for acquiring further properties.
• Any personal fund if invested as a director’s loan into the limited company can be withdrawn.
• Change of ownership of a company is a lot easier than the sale of a property in the case of an individual investment.

Setting a Limited Company for Buy to Let Mortgage

Seeking protection under the umbrella of incorporation does not completely safeguard the potential investors. They have to pay a price for it. The drawbacks related to the formation of limited companies are

1. Disclosure: Companies have to disclose every information related to their business like the profits, salaries given, margins and so on. All of this information could be used by the competitors. The disclosure process is usually lengthy and time consuming.

1. Availability of Mortgage: Very few mortgage providers lend to a company so this could leave the company with a very limited option for the availability of funds. Money is the most important element of any business without which a business cannot prosper.

1. High Mortgage Rates: Most of the lenders charge high mortgage rates and fees for lending from limited companies than from individual investors.

1. No Capital Gain Tax (CGT) Allowance When The Company Sells The Property: When the company sells the property acquired by it, it would not be given the benefit of capital gain tax allowance which would be given to individual investors.

1. Overheads: There are a number of additional costs involved while setting up and running a limited company like filing fees, legal fees, costs involved in auditing, payment made to various agents, corporation tax and so on which increases the overall cost.

1. Complexities in Transferring Properties: Transferring existing investment properties from the name of an individual to a limited company is an arduous task than purchasing new properties. Such a process would attract both Capital Gain Tax and Stamp Duty Land Tax (SDLT).

For more on buy-to-let mortgages, you can get in touch with buy to let accountants in South end on sea for more information.