Why Consider a Limited Company for Buy to Let Investments?

Many landlords are opting to run their property investments through a Limited Company, often referred to as a Special Purpose Vehicle (SPV).

Arjun Kumar
Arjun Kumar
Jun 16, 2024

In fact, one study revealed that 64% of buy to let investors with at least four properties plan to use a limited company to expand their portfolio. This approach offers several advantages compared to independent ownership.

Benefits of Using a Limited Company for Buy to Let Mortgage

Using a Limited Company for buy to let properties can offer:

Asset Protection: Separates personal and business assets, protecting personal wealth if financial troubles arise.

Note: Some lenders may require personal guarantees.

Legacy Planning: Simplifies succession planning and inheritance issues.

Deposit Availability: Allows directors to lend money to the company for property deposits.

Joint Investment: Facilitates co-ownership of properties with other landlords.

Tax Efficiency: Limited Companies often pay lower taxes on rental income and can deduct certain expenses, reducing overall tax liability.

Risk Separation: Properties owned by the company are separate from personal assets, reducing personal financial risk in business dealings.

Choosing the Right Company Structure

Selecting the appropriate company structure is crucial. Common options include:

Limited Liability Company (Ltd.): Offers protection from personal liability for directors and shareholders.

Limited Liability Partnership (LLP): Suitable for partnerships with limited liability for each partner.

Special Purpose Vehicle (SPV): Specifically for property investment with no other trading activities.

Your accountant can help you choose the best structure based on your personal and business goals.

Limited Company Buy to Let Mortgages

Lenders differentiate between Trading businesses and Special Purpose Vehicles:

Trading Business: Engages in activities beyond property letting (e.g., a dental practice or retail store).

Special Purpose Vehicle (SPV): Set up solely for owning an investment property and receiving rental income.

Lenders prefer Special Purpose Vehicle due to lower risk, as their main activity is property letting. This makes more lenders willing to offer mortgages to Special Purpose Vehicles than to Trading businesses.

Setting Up a Limited Company for Buy to Let

Here are the steps to set up your Limited Company:

Choosing a Name: Ensure it’s unique and not already in use.

Registered Office: Decide on the company’s official address.

Appointing Directors and Shareholders: Determine who will run the company and who will own shares.

Tax and Regulatory Compliance: Register for Corporation Tax within three months and comply with all legal requirements.

Tax Considerations

Understand the tax implications of operating through a Limited Company. Consult a tax advisor to explore:

Corporation Tax: Charged at 19% on profits below £50,000 and up to 25% on higher profits (Tax year 2023/2024).

Stamp Duty Land Tax (SDLT): An additional 3% stamp duty applies for purchasing residential property through a Limited Company, even if it's your first property. For multiple property purchases, Multiple Dwellings Relief (MDR) can help reduce the stamp duty. Consult with your solicitor or accountant to ensure MDR is applied.

Should You Set Up a Buy to Let Special Purpose Vehicle?

Using a Limited Company buy to let SPV can provide many benefits, including asset protection, tax efficiency, and easier succession planning. Consult with professionals like accountants and tax advisors to ensure you set up and manage your company correctly.

Making an informed decision about setting up a buy to let Special Purpose vehicle can help you maximize your property investment returns and safeguard your financial interests.

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