The Benefits of Setting Up a Company to Own Your Rental Properties

Why Landlords are Opting to Put Their Rentals through Companies

As a landlord, you may have heard that some property investors are putting their rentals in companies to save on taxes and reduce costs. With the recent changes in tax rules and additional legislation, many landlords are feeling the financial squeeze on their investment returns. But is setting up a company the right move for you?

Let’s take a closer look at the benefits and drawbacks of incorporating your rental properties into a limited company.

Tax Efficiency and Cost Reductions

One of the primary reasons landlords choose to incorporate their rental properties into a limited company is to save on taxes and reduce costs. By doing so, landlords on a higher tax rate can continue to pay their buy-to-let mortgage before tax is deducted. This can make a significant difference in the return on investment, particularly if you recently renegotiated your mortgage deal or are about to.

According to a GetGround poll in 2022, 75% of UK landlords have had at least one property within a limited company. This indicates that more and more landlords are turning to this option to improve their financial position.

However, it’s worth noting that there are additional responsibilities and costs that come with setting up a company. For example, mortgage rates for limited companies tend to be slightly higher than those available for individual landlords. Additionally, if you already own the property, transferring it into company ownership is seen as a sale and subject to the 3% surcharge on top of the usual stamp duty rates.

Capital gains tax must also be considered if you’re a higher rate taxpayer, and the value of the property has gone up by more than your annual CGT allowance. You’ll be required to pay 28% tax on the balance, which can significantly impact your financial position.

Assessing if Setting up a Company is Right for You

The decision to incorporate your rental properties into a limited company shouldn’t be taken lightly. It’s essential to weigh the pros and cons and determine whether it’s a viable and worthwhile option for you. Here are some factors to consider:

Your tax situation: If you’re a higher rate taxpayer, incorporating your rental properties into a limited company could help reduce your tax bill. However, if you’re a basic rate taxpayer, the benefits may not be as significant.

Your mortgage deal: If you recently renegotiated your mortgage deal or are about to, incorporating your rental properties into a limited company could help reduce your costs. However, if your current mortgage deal is favourable, it may not be worth the effort and costs to incorporate.