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Should I use a Company Structure to Invest in Property?

06 09 2019

With the continuously changing face of the property market and buy-to-let options, more and more investors are considering the possibility of using a limited company to invest in property. But is this right for you and what are the benefits of doing so?

Company structure

Tax savings

As the Government gradually implements a cap on the amount that landlords can offset against their tax bill, mortgage interest tax relief is growing less and less beneficial for individuals; from April 2020, you will not be able to deduct any mortgage costs from rental income, instead receiving a 20% tax credit, at the basic 20% rate, for your mortgage interest.

Using a company structure means landlords will be charged corporation tax – currently 17% – on their earnings, rather than income tax at their marginal rate. Therefore, you will still be able to declare rental income after deducting the mortgage and be unaffected by the changes in mortgage interest tax relief.

Rising popularity

The benefits of using a company structure for property investment have not gone unnoticed. New research shows that more than half of landlords plan to use limited companies to buy properties in the coming year; that’s more than double the number that intends to buy as individuals. Limited companies are clearly becoming a popular way to expand a property portfolio and estimates suggest that more than one in 10 rental properties are now owned by private companies.

In addition, when we look at the total number of buy-to-let applications completed by Mortgages for Business in Q2, 52% were from landlords using limited companies, and research shows that 59% of all lenders offered limited company buy-to-let products in Q2 2019, up from 49% in Q1. 

Potential Disadvantages

Fewer options

The number of buy-to-let mortgage deals for companies is more limited than those available to individuals. Having said that, lenders are recognising the growing interest in landlords who wish to take the limited company route towards property investment and are opening their product offering as a result. 59% of all buy-to-let mortgage lenders now offer products for investors using a company structure.

Habito, an online UK mortgage broker, is a prime example of how brokers are responding to changing property investment trends. They have promised to half the time it takes for landlords to receive a mortgage offer with their new range of high loan-to-value, competitive rates and long-term fixed deals for the buy-to-let market. These are available to those investing in as an individual and a limited company.

Additional taxes

You may incur a further tax bill on any dividends you pay yourself from the company. Furthermore, if you sell a property or transfer your existing portfolio into a company structure, you will be liable for capital gains tax. You would also need to pay stamp duty on any properties you are transferring, as they are essentially being “purchased” by the company. Therefore, it may not always be advisable to transfer existing properties into a company structure – although, of course, you will need to assess your individual circumstances.

Conclusion

The tax advantages, growing popularity and increasing number of buy-to-let mortgage product offerings suggest that investing in property via a limited company structure could be a good option for many investors.

As the property investment market continues to evolve, specialist advice becomes less a luxury and more a necessity for investors to stay on top of the latest regulations and achieve the highest returns. Whether you are just starting out or looking to build your portfolio, our expert team at Alesco can help with finding the right option for you. Contact us today.

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