4 reasons to purchase a buy-to-let-property under a limited company

Recently, there’s been a massive increase in amount of UK landlords purchasing buy-to-let properties in a limited company rather than their personal name. This is mostly due to changes implemented by the government in the 2017 Budget which includes a reduction in the amount of tax relief available for interest on buy-to-let mortgages.

One of the main reasons for the recent growth in limited company buy-to-let is the difference in tax. Rather than paying income tax, if you were to purchase a buy-to-let property as a limited company, you would pay corporation tax which currently sits at 19% and is going to reduce over the next few years.

Let’s look at the key benefits in detail:

Lending opportunities

Lending costs will vary depending on whether you’re buying in a limited company or as an individual. While mortgages for a limited company can be higher, lenders tend to relax the buy-to-let stress testing when considering rental calculations.

It’s better for traders

If you buy a property to make value-adding improvements and sell on for a profit, you’re better off purchasing as a limited company. By trading properties as a limited company you will pay corporation tax on your profits as opposed to purchasing as an individual where your gains would be taxed as income. The rate of corporation tax tends to be around half of the higher rate of income tax.


Additional rate income taxpaying landlords could find themselves worse off. If you are a basic rate taxpaying landlord; you might find that because the tax is calculated differently, the taxable income calculation could tip you into the next tax bracket.

Upcoming tax changes

From 6 April 2020, if you own a residential property, you will no longer be able to deduct the finance costs from your property income when calculating your taxable profit. This means that you will only get a basic rate reduction on the finance costs from your income tax liability.

The table below outlines an example of a higher rate (40%) taxpayer who personally owns a property valued at £300,000 with a buy to let mortgage of £225,000 (75% LTV), receiving rent of £1,250 pcm. The first column displays his net profit calculation if he privately owns the property. The second column displays his calculation if he owned the property in a limited company:

Personally owned Limited company ownership
Rental income which is now the taxable profit:
£15,000 pa
Rental income:
£15,000 pa
Assuming average mortgage interest rate
of 3.49%:
£7,852.50 pa
Assuming average mortgage interest rate
of 3.49%:
£7,852.50 pa
Taxable profit calculation:
£15,000 x 40% = £6,000
Taxable profit calculation:
£15,000 – £7.852.50 = £7,174.50
Mortgage interest relief at basic tax rate:
20% x £7,852.50 = £1,570.50
Tax due:
£6,000 – £1,570.50 = £4,429.50
Corporation tax due: (17%)
£7,147.50 x 17% = £1,215.08
Net profit calculation:
£15,000 – £7852.50 – £4,429.50 = £2,718
Net profit calculation:
£7,147.50 – £1,215.08 = £5,935.42

As you can see, by investing through a limited company, you can save a lot of tax. At Funding Hut, we can find you the best rates for loans if you’re planning on purchasing property through a limited company. Give us a call today on 0203 900 0970 or email enquiries@fundinghut.co.uk

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