Maybe you became an accidental landlord after moving in with a partner and renting out your own property. Perhaps you were ready to move into a bigger home, but unable to sell your current one. Or could it be that you always planned on having a small portfolio of properties to rent out?
“People become landlords for a number of reasons”, mortgage adviser Jo Jingree says. “It can happen through unexpected life events, like separation, relocation or inheritance. Or for some renting out a property or properties could be a planned investment, as a means of extra income or a retirement fund.
“Either way, there have been a number of landlords getting in touch to see what the pros and cons are of getting a mortgage as a limited company director as opposed to doing so as an individual,” Jo adds.
Speak to experts
At Mortgage Confidence, we can speak passionately about getting a buy to let mortgage. But, when you’re in the world of property investment, it’s well worth speaking to a mortgage adviser and an accountant—and potentially even a financial adviser—and doing so simultaneously.
This can help you properly evaluate your options—assessing things like tax implications, stamp duty costs and cash flow. To help, we’ve teamed up with chartered accountant Nicole Zalys, who is the founder of Threeboxes Accounting, to talk through the benefits and drawbacks of buying a property as a limited company.
What is a limited company?
“A limited company is a separate legal business entity,” Nicole says. “Unlike owning properties in your personal name, this structure creates a distinct entity with its own identity, bank accounts and tax status. The company can purchase properties, collect rent, and pay expenses independently from your personal finances.”
The benefits of buying a property as a limited company
According to Nicole, the benefits include:
- More tax-deductible expenses: “Mortgage interest remains fully tax-deductible as a business expense, unlike for personal ownership where restrictions limit this benefit,” Nicole explains. “You can also claim mileage for property visits, a percentage of home utilities for administrative work, and portions of personal phone expenses used for property management,” she says.
- It can give you more flexibility: “This separation of rental profits from personal earnings creates more flexibility in how you extract money—through dividends, salary, or reinvestment,” Nicole says.
- It can be tax efficient: “Keeping rental income within a company means these profits won’t automatically stack on top of your other earnings, potentially pushing you into higher tax brackets,” the expert adds.
- It can come with tax incentives: “When selling properties, companies may benefit from different Capital Gains Tax (CGT) treatment, potentially including lower rates than personal CGT and reinvestment reliefs.”
The downsides of buying a property as a limited company
Nicole highlights some cons of buying a property as a limited company. This includes:
- Potential higher interest and stricter lending criteria: “Although this will be dependent on each individual and business,” Nicole says.
- More admin: “The administrative burden increases significantly with annual accounts, Corporation Tax returns, and compliance requirements,” Nicole says. However, there is where an accountant can help!
- Setup and running costs will increase: “This includes accountancy fees and legal expenses, so it’s worth weighing this up when considering “going limited”,” the account explains.
The end game
As you can see, going limited isn’t something to take lightly. But if you are a landlord and thinking of adding more properties to your portfolio, it’s a topic that’s well worth giving some thought to.
“When making this decision, you need to weigh up the whole picture,” Jo says. “Tax is a big part of that,” Jo adds. “But so is deciding on what is the right type of mortgage for you and your circumstances. Therefore, expert advice is needed across the spectrum.”
Reach out here
At Mortgage Confidence, along with helping first time buyers onto the ladder, we also work in the buy to let market.
To find out more, do get in touch with award-winning mortgage adviser Jo who offers a no obligation 30-minute consultation and is on hand to answer any queries you might have.
The FCA does not regulate some forms of Buy to Lets. Think carefully before securing other debts against your home/property.
There may be a fee for mortgage advice. The precise amount will depend upon your circumstances, but we estimate it will be £399.
Your home may be repossessed if you do not keep up repayments on your mortgage.
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