Should I put my rental properties into a limited company?

Before you make any decisions, you’ll need to consider all the tax implications, which will depend on your own circumstances. An accountant or tax specialist can help you weigh up the options.

Can my limited company buy me a house?

You can buy your own home through a limited company, but tax implications need to be carefully considered.

Can I sell personal property to my limited company?

You can, but transferring assets you own to a limited company you’re the director of usually means you pay Stamp Duty Land Tax. You would also need to consider Capital Gains Tax implications.

Can I live in a property owned by my limited company?

You can, but it’s similar to buying property through your limited company in order to live in – there are tax implications, including Capital Gains Tax, that could make it more expensive. If this is something you’re thinking about, speak to a qualified professional first.

Pros and cons of limited companies for landlords

More than 50,000 limited companies were set up to manage rental properties last year, according to figures from estate agents Hamptons. This is a slight (3%) increase from 2022 and is almost double the number set up just five years ago.

This means that there are now more than 345,000 limited companies that own buy-to-let property in the UK.

With the rise in landlords setting up limited companies, We spoke to tax specialists, Norwich Accountancy, to look at some of the pros and cons of setting up a limited company if you’re a landlord, and how it might affect your landlord building insurance.

22.07.24

By Alan Boswell Group

Why are landlords setting up limited companies?

One of the main reasons for setting up a limited company for buy-to-lets is that you’ll potentially pay less tax as limited firms pay corporation tax (which is lower) than income tax.

For landlords in higher tax brackets, corporation tax is significantly lower if profits are under a certain amount, and you may be able to deduct mortgage interest from your limited company’s profits.

If you are considering this option, we advise you to take professional advice from a tax specialist.

How are limited companies set up?

It’s relatively simple to set up a limited company, and a comprehensive guide to help you do this is available at GOV.UK.

When you’ve registered a limited company, you must submit company accounts and a tax return annually. You can do this yourself or hire an accountant to help make sure all your records are compliant.

If you don’t keep proper records, you can be fined up to £3,000 or be disqualified as a company director.

Who is the landlord if property is owned by a limited company?

If property is owned by a limited company, that company is the landlord (not you personally). There still needs to be a tenancy agreement between the tenant and the landlord (in this case, the limited company). But as the company director, it would be up to you to run the business and make any decisions.

What are the benefits of a limited company for landlords?

For many landlords, buying property through a limited company comes with a number of benefits:

Tax savings

Limited companies pay corporation tax on profits which is currently set at 19% if your profits are under £50,000. For higher-rate income taxpayers, this could mean a big reduction in what you’ll owe. You can find out more in our guide to paying tax on rental income and landlord tax guide.

Limited liability

Limited companies are treated as standalone entities, which means they’re separate from your personal liabilities. If the company is dissolved or taken to court, your own personal assets shouldn’t be affected.

Reinvest profits to increase your portfolio

You can reinvest the profits you earn which can help you buy additional properties.

Being a company director can also give you more opportunities to borrow money. Coupled with reinvested profits, your portfolio could expand quicker than buying property personally.

Flexibility for estate planning

You can add and remove limited company directors easily and gift shares in the company to beneficiaries, which could help you with estate planning. Property held in a limited company could also help reduce inheritance tax.

What are the disadvantages of a buy-to-let limited company?

As with any decision you make, you’ll need to weigh up any benefits alongside the drawbacks in relation to your personal circumstances, which include:

No significant tax savings

If you’re a lower-rate taxpayer, setting up a limited company might not yield real tax savings, particularly if you own one or two rentals. It may even end up costing you more due to the administration of managing the company.

Extra responsibilities and costs

Running a limited company means submitting annual accounts and a company tax return. Although you can do this yourself, hiring a professional should ensure all your paperwork is completed properly and on time.

Income tax

If you decide to draw either a salary from your limited company or receive dividends (taking out profits), you’ll pay income tax on what you receive. If you have a day job, you’ll also pay income tax on your earnings from that role.

Complicated tax implications

One of the big advantages of setting up a limited company is also a drawback – tax. Working out what you owe can be complicated, especially if you have various income streams or other investments.

Unless you fully understand the tax implications yourself, it’s wise to speak to a tax expert before deciding to set up a limited company.

Stamp Duty Land Tax (SDLT)

If you already own property and want to transfer ownership to a limited company, you’ll likely need to pay SDLT.

Typically, you’ll pay SDLT if you’re ‘connected’ to the property. So, if you own it under your own name and want to transfer it to a limited company where you’re the director, you’ll be charged SDLT.

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How does landlord insurance work for limited companies?

If you decide to set up a limited company to hold your rental properties, you must let your landlord insurance provider know as it is vital that the correct legal entity is insured. Failure to inform your insurer may result in a claim being declined. Similarly, if you already have a limited company with property assets and are looking for landlord cover, you’ll need to tell the insurer. This is so that your insurer is clear about ownership.

Policies can be tailored to suit the type or number of properties you own, whether you own commercial property, residential, or an HMO (house in multiple occupation).

As with all landlord insurance policies, you must carry out your landlord responsibilities, including arranging safety certificates. If you don’t, you risk invalidating your policy and your insurer can reject a claim.

To find out more about how Alan Boswell Group can help you with landlord insurance, speak to an expert member of the team on 01603 216399. For tax advice, speak to tax specialists, Norwich Accountancy, on 01603 630882 or send an email.