Buying a buy to let property via a Limited Company

Friday, 4 January 2019

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Buy to let mortgage advice, Edinburgh

Convential wisdown (i.e. internet forums) is indeed pretty in favour of using a Limited Company for buy to let properties, and there are some theoretical advantages of course, mostly the full deduction of mortgage interest as a cost, when calculating the rental profit for higher rate taxpayers (who would otherwise only get basic rate tax relief).

However, there are disadvantages in practice (or at least lack of advantages), which the internet forums tend to gloss over, such as:

  1. Most importantly, interest rates are higher on mortgages for Limited Companies. For example, for a £150,000 mortgage on a £200,000 purchase the cheapest Ltd Co mortgage is 3.49% fixed for 2 years, while the cheapest "normal" mortgage is 2.34% (both examples are fee-free). So while you can deduct the full interest costs, the interest costs are a lot higher to start with, which undoes most if not all of the benefit.
  2. Legal costs (conveyancing) are usually higher for a Ltd Co - sometimes double the amount
  3. You still pay the 3% extra stamp duty
  4. You have to pay the costs of registering a company, and then submit annual accounts to Companies House etc, which may require help from an accountant, which would come at a cost
  5. If you are a 40% taxpayer then, even if the property was bought as an individual, pension contributions could be made to avoid paying 40% tax on the rental income (though this may not be desirable for other reasons).

In general, we would say that for someone wanting to build a portfolio of 3+ buy to let properties, a Ltd Co might be worth doing, though the mortgage rates would still be less good than for direct ownership. But for only one property it can seem like a lot of hassle for little, if any gain.

Having said all that, we DO arrange such mortgages, so if you are looking to purchase (or remortgage) a buy to let property either within or outside a Limited Company then just get in touch.

Independent financial advice. Regulated by the Financial Conduct Authority (FCA no. 603653). Company no. SC450460