Buy to Let: Limited Company vs Personal Name

Buy to Let: Limited Company SPV vs Personal Name

Looking to purchase your first buy to let property? Trying to decide whether to buy through a limited company or not? Are you an existing landlord considering moving your properties into a limited company? The choice of limited company vs personal name is a multifaceted decision which faces all landlords.

The truth is it’s not a question with a simple answer. It depends on your circumstances, future plans and personal preference. Therefore, you would be wise to steer clear of advice from those who give it before understanding this. What is most appropriate depends on numerous factors. In this blog, we’ll take a look at the key differences between purchasing via a limited company compared to in your personal name. In doing so, this should shed light on the differences between each option allowing you to make a more informed decision, when looking to acquire rental property and buy to let mortgages.

Interest Rates and Fees – Limited company mortgage products have higher interest rates than mortgage products for properties bought in a personal name. Regarding fees, both limited company and personal name buy to let mortgage products are available with no upfront, pre-application costs. However, it is more common for limited company products to have upfront fees and they tend to be more expensive. When required, upfront costs are typically for the valuation and the assessment of the application.

Tax on Profit – Often sighted as the biggest bonus of purchasing through a limited company. But is it a benefit for everyone? It’s important to consider the taxes involved and your own tax band – dependent on your level of income. If month to month, you do not require the money generated from rent, having properties in a limited company is likely to be more suitable. For those who are already higher and additional rate taxpayers, this is even more applicable. Profit accrued in a limited company will be charged corporation tax. This will be at a significantly lower rate than if it were income, as it would be if the properties were in personal names, subject to higher and additional rate tax bands. Many limited company landlords begin to draw an income from the limited company once they have retired and are basic rate taxpayers. Income can then be taken from the company via a tax efficient salary with the remainder coming from dividends to minimise the tax liability.

Tax Implications – Other tax implications include stamp duty, capital gains as well as the potential for deductible expenses. How these taxes are charged and what deductions are available is affected by whether the properties are purchased and sold through a limited company or in a personal name. It is advisable to speak to an accountant to ensure you understand the tax implications before starting your buy to let journey.

Accountant Costs – If you own property in your personal name, you can complete your own self-assessment tax return free of charge. However, if you own your property via a limited company, you will require an accountant to produce company accounts for you. It is important to be aware this is a necessary expense if you choose to go down the limited company route.

Future Planning – Properties owned in a limited company are owned by the company rather than the individual. Therefore, it is a lot easier to transfer ownership without incurring costs. The properties are assets of the company so if the company shareholders are changed, this changes who owns the property. When property is owned in a personal name, ownership can typically only be transferred or part-transferred as part of a purchase or remortgage.

Speaking to a broker about the mortgage aspects, as well as an accountant about the tax implications, puts you in the best place to make an informed decision. Whether you choose a limited company or your personal name, both options allow you to benefit from the rental yield and capital growth of owning rental property. For more information on buy to let purchases and remortgages, or any other mortgage query, feel free to get in touch for free, professional advice.