03 Jul 2017 11:09 AM

There is a common conception that using a limited company to both buy and own buy-to-let property is the fastest route to maximum profitability, especially after landlords lost certain tax reliefs earlier this year.  However a new study questions this thinking and suggests using a limited company only becomes viable once you have four or more properties.

The principal reasons a company may not be the best option are:

  • The cost of a buy-to-let mortgage is usually higher when a company applies
  • Properties owned by companies are taxed differently to those in private ownership
  • The costs involved in running a company-owned buy-to-let property are treated differently to the costs associated with running a privately owned property

But what does that mean in real terms?  Private Finance, an independent mortgage broker, has constructed several scenarios to answer that very question.

The first scenario is based upon a landlord with an annual salary of £35,000 and an annual rental income of £11,010.  If they buy-to-let under a company structure they would take home 4% less (just under £1400) than they would if they bought it as an individual.

The second scenario is based upon a landlord with 5 properties.  Again they have a salary of £35,000 but an annual rental income of £55,050. In their case they would take home almost £1000 more if their portfolio was owned by a limited company.

Although these scenarios are illustrative and support the heightened scrutiny rightly being levelled at holding property under a limited company structure, the fact is the recent changes to the way landlords are taxed means every case needs to be examined separately.  

Before you start to consider which would be best for you, ask yourself:

  • If you do transfer your properties into a limited company, how much more would you need to pay in terms of capital gains tax, stamp duty, surcharges and legal, estate agency and mortgage fees?
  • How would having to pay corporation tax and maybe even business rates impact on your rental profits?
  • How much would it cost (in fees, time and effort) to file your new company’s annual accounts and ensure all of the associated compliance exercises (e.g. the appointment of directors and minuteing an annual board meeting)?
  • Are your lender’s charges the same for a company as they are for an individual or higher?
  • What are the tax implications for you if your rental properties are received as company dividends in addition to your regular salary?
  • Will your future earnings be affected if the Government carries out its threat of reducing the level of tax-free dividends from £5,000 to £2,000?
  • How might your tax and take home situations change if, as is highly likely, the Government makes more changes to the way landlords, dividends and property is taxed?

With so much to consider when deciding whether company or private ownership is the best option for you, it is absolutely vital you take specialist advice even if it is only to validate your choice.  This is where our team can help.

If you have any questions relating to a property portfolio or any other aspect of your personal tax situation, contact us at and we will be more than happy to help.