In 2021, landlords set up nearly 50,000 limited companies – the highest number on record. There are good reasons for doing this.
If you buy a rental property via a limited company, the company pays corporation tax at 19% rather than income tax at 20% (basic rate), 40% (higher rate) or 45% (additional rate). Most importantly, finance costs such as mortgage interest relief are deductible – an option that’s no longer available to individual landlords. It can also be tax efficient to draw income from the company as a combination of salary and dividends.
That said, there are downsides to holding property via a limited company. If you sell a property, you can’t make use of your personal Capital Gains Tax (CGT) allowance. Also, buy-to-let mortgages for companies tend to be more expensive. Most importantly, you can get hit by a large bill if you transfer a buy-to-let property you already own to a company. This is regarded as a sale and means you will have to pay Stamp Duty, legal fees and potentially CGT.
If you are thinking of setting up a limited company you should consult an accountant first.