Is your buy to let interest waning.......? Maybe you need better company?
Written on 19/06/2019

Recently we have seen that Buy to Let Landlords are beginning to lose their tax relief. Back in 2015 the then Chancellor, George Osbourne introduced measures to rebalance the housing market to help first time buyers, one of these was the reduction of tax relief on buy to let mortgage interest.


Among the other allowances this meant that the declared rental income to HMRC was lower than the actual amount, a valuable perk and for some it prevented going into a higher tax bracket.


From 2017/2018 this began to reduce until in 2020/2021 the level that can be claimed will be nil but of course as it is HMRC, it’s not quite that simple…..

As a landlord you will have to declare all rental income, pay income tax on the total and then claim back for 20% of it as a credit.

So there has been plenty of press in recent weeks regarding a possible alternative way to run a buy to let property portfolio, with an emphasis on using a limited company… tell me more I hear you say?


Ok let me try to explain how that might work and what possible benefits you might gain as a result of setting up a limited company to hold your buy to let properties:


  • You establish a Limited Company with companies house
  • You advise your lender(s) as a Ltd Company borrower is different to a personal borrower and usually pays higher interest
  • You “sell” the residential properties to your company and pay any fees and CGT that may be due and any stamp duty
  • Now all expenses are allowable as deductions including mortgage interest
  • You can even withdraw the rental income as dividends and potentially attract a lower overall taxation (current annual dividend allowance is held at £5,000)


Now you will likely pay higher interest on the loans but over time this could be outweighed by the lower tax you pay and the more properties that the company owns the higher the potential benefit.


The Ltd Company would not qualify for Business Property Relief for IHT though as a property letting business is excluded, so inheriting the new company could be an issue for your clients.


But having a limited company allows you to add more people as directors, employees etc and extract potential profits in a manner that can be efficient and tailored to each person, you could even appoint someone to run it for you and retire and still draw income/profits.


And retaining profits (i.e not taking them out as income) as a company attracts Corporation Tax and not Income Tax, rates differ as below for profits of up to £300,000:


Corporation Tax                                                19%

Income Tax                                                         45%


You also have more pension planning options (though don’t get carried away, residential properties are not permitted pension investments though private company shares can be…..)


So in essence there are benefits to placing your residential buy to let properties in a Limited Company, there are costs to meet and “hoops” to jump through but once you have them inside your company, you have some more flexibility on the income and can claim all of the costs including interest as allowable business expenses.

Now I am not suggesting everyone should do this, of course I am not. I am however, saying that you should all examine if this approach might work for you, add up the costs of setting it all up (the fees, the CGT, the Stamp Duty etc) and then weigh it against the potential tax savings available.......only then could you be in a position to see if you can make it work for you.


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