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Is Your Property Portfolio Cheaper to Run as a Limited Company Now?

Since the introduction of legislation surrounding landlords and buy to let properties has put a financial strain on individuals seeking to hold a portfolio of property, there has been a surge in landlords using limited companies to do so instead.


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


With the aim of the government-imposed restriction to limit tax relief on high earning landlords, it’s hard not to see the appeal.

Buying as an individual now comes with increased cost and decreased profit – whether you own one property or an entire portfolio, but depending on your situation, purchasing through a limited company may not be the best path either.


Current advantages of a limited company

Taxes

Owning a property as an individual means the profit you make from your rental properties is added to the rest of your income and is subject to typical income tax rules.

However, purchasing as a limited company means profits are taxed at the corporation tax rate. This currently sits at 19% but is predicted to fall to 17% over the coming years. The current corporation tax rate is still about half of the higher rate of income tax, leaving more money in your pocket.

Keep in mind that dividends will be still be taxed, but there are ways to save, such as:

  • planning payments to optimise tax efficiency
  • distribution to basic rate tax-paying family members
  • leveraging your profits as capital for your next investment.

Another tax advantage concerns Inheritance Tax (IHT) because companies have more options than individuals.

There are trust structures, share types, and all sorts of tips and tricks that work in your favour. The complexities surrounding IHT are varied, so it’s best to work with a professional if you wish to benefit.


Mortgages

A major benefit to buying property as a limited company is that you can offset mortgage interest against your rental income earnings.

Within the next few years, individuals will lose the ability to do this. A high tax bill will be coming your way if you pay tax at the higher rate and use mortgage funds to purchase property as an individual rather than a company.


Current drawbacks of a limited company

Taxes

As mentioned above, dividends will still be taxed if you wish to take money out and use it as income.

Unfortunately, these dividends will be subject to corporation tax as well as dividend tax. The tax you pay by using your rental earnings as your income versus letting your money build up may not be worth it and alternatives may need to be explored.

Mortgages

Mortgages for limited companies may be on the rise, but you still won’t be blessed with many options from lenders – and the deals you do find may be costly with low borrowing caps.

The mortgage application process is not all that different as a limited company – a personal guarantee is still required and your finances will be thoroughly investigated.

But, there are many specialists lenders willing to work with limited companies. Consulting with a mortgage broker in this scenario will be your best bet – it’s their job to seek out the right lenders and deals for your specific circumstances.

Other factors

One thing to think about before using a limited company in the pursuit of property management is the additional effort and money associated with it.

However, in the grand scheme of things, the extra accountancy costs and paperwork required might not be overwhelming and perhaps worth the energy.

While there are clear benefits to using a limited company, you need to weigh the pros against the cons. At Dental and Medical Financial Services, we are dedicated to ensuring you have the right plan for your property investments which includes a mortgage that aligns with your future financial plans.


Need help to secure a low-cost mortgage?
Mortgages | Buy to Let | Property | Mortgage Planning |

Dental & Medical Financial Services have been helping doctors and dentists with finding low-cost mortgages for your home and investment properties for over 25 years. Call Chris to discuss your options.

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