Should I purchase a buy-to-let property through a limited company?
Are you planning to buy a buy-to-let property soon but not quite ready yet? There are several steps you can take now, even if you are months away from making a purchase, to ensure you encounter no issues when applying for a mortgage!
Whether you should purchase a buy-to-let property as a limited company depends on your individual circumstances and goals. Here’s a breakdown of the pros and cons to help you decide:
Pros:
- Tax Efficiency: You’ll pay corporation tax on your rental profits, which is currently lower than income tax rates for higher earners. You can deduct mortgage interest and other expenses from your rental income before paying tax.
- Limited Liability: Your personal assets are protected if the company faces financial difficulties or legal action. Â Â
- Flexibility: You can withdraw profits as dividends or salary, giving you more control over your tax planning. Â Â
- Inheritance Tax Planning: Transferring ownership of a limited company can be simpler than transferring individual properties.
Cons:
- Higher Mortgage Rates: Lenders typically charge higher interest rates on buy-to-let mortgages for limited companies. Â Â
- Increased Administration: You’ll need to set up and manage a company, including filing accounts and tax returns. Â Â
- Less Choice: There are fewer mortgage products available for limited companies compared to individual borrowers. Â Â
- Capital Gains Tax: When you sell the property, you’ll pay corporation tax on the gain, and you won’t be able to use your personal capital gains tax allowance.
It’s crucial to seek professional advice from a qualified accountant and mortgage broker before making a decision. They can help you assess your individual circumstances and determine whether purchasing a buy-to-let property as a limited company is the right choice for you.
Here are some factors to consider when making your decision:
- Your income tax bracket: If you’re a higher-rate taxpayer, the tax benefits of a limited company can be significant.
- The size of your portfolio: If you plan to own multiple properties, a limited company structure can be more efficient.
- Your investment strategy: If you’re planning a long-term investment, a limited company can offer greater stability and tax advantages.
- Your risk tolerance: Limited liability can protect your personal assets, but it’s important to understand the risks involved in running a business. Â
Why choose us
We’re experts in the field
âś… Our team of brokers are specialists in helping when your credit score is low or you’ve had past credit problems, as we have access to the lenders who can consider your mortgage application. Â
Access to the Banks
âś… Access to over +70 lenders so you will get the most suitable rates and terms available with many of these lenders not available on the high street, which are exclusive to brokers. Â
Relationships
✅ Real relationships with the lenders so we can get your application pre-approved if your situation isn’t straightforward. Plus, your mortgage broker is there to answer all your questions.
Rapid solutions
✅ We’re quick, on our first call we will quickly establish your options and let you know the next steps so we can arrange everything promptly for you. We can arrange a video call if you prefer to speak face-to-face.
Remember, the decision of whether to purchase a buy-to-let property as a limited company is a complex one with no one-size-fits-all answer. Carefully weigh the pros and cons, seek expert advice, and make an informed decision that aligns with your financial goals and risk tolerance.
Here are some resources that can help you learn more:
Mortgage Strategy: https://www.mortgagestrategy.co.uk/analysis/buy-to-let-watch-your-knowledge-is-crucial/
