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TAX TIP TUESDAY: Does Incorporation Make Sense for Landlords?

Our 5-minute read – Tax Tips – for UK doctors and dentists will help you save tax, get organised with your tax affairs and make sure you meet important deadlines with ease.

This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. Your property may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
The Financial Conduct Authority does not regulate tax advice. 

A lot of landlords are being pushed towards incorporating, and while it’s not without its benefits, it’s still important to remember the negatives associated with incorporating your company before you make the leap.

Pros and Cons

The major advantage of incorporating is separating yourself from your company and making it a legal entity all on its own. By creating a separate identity from yourself as the owner, you will no longer be held personally financially responsible in the event of an issue – otherwise known as limited liability.

Of course, to benefit from limited liability, there are certain things that you’ll trade off. Operating your company separately might take some getting used to if you’ve previously managed all your finances – personal and professional – in one account. And it might be odd to think that everything you may have owned exclusively beforehand now belongs entirely to your company. Gone, also, is the anonymity you may have relished before because there are a whole slew of rules and steps you’ll need to follow, all of which involve making your company more accountable publicly.

You’ll need to share and continually update details of the company’s owners (shareholders) and its officers (directors) with Companies House. Your company will also need to file annual financial statements for public record with them. The directors are also required to abide by the Companies Acts which involve a bit more administration and paperwork and in the event of financial troubles, they’ll need to act with the creditors in mind rather than the owners — a task that might be easier said than done.

Incorporation tax considerations

By incorporating your business, you’ll now benefit from the current 19% corporation tax, but because you will need to extract dividends and salary from profits, you’ll also be paying income tax on that money. This used to be negligible but there are plans to increase this tax which will diminish the savings.

However, with the new regulations affecting buy-to-let landlords that limit tax relief, becoming a limited company is perhaps the better option as companies will not be impacted by these changes – which might make up for the decreased savings you might see as an incorporated company.

These factors are just the tip of the iceberg: you may be able to get more access to mortgage providers, pensions, and even be able to more freely transfer shares in your company.

Talk to us

You’ll need to think about all these advantages and disadvantages when you’re considering incorporation. But because it is such an important step in your and your company’s future, the best thing you can do is to consult your accountant and financial advisor.

Together, they can help you prioritise, find solutions for any potential problems that may arise, and guide you through the process if you decide incorporating is right for your business.

If you need a buy to let mortgage, our specialist mortgage adviser can assist with presenting a range of options for you.  

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