How setting up a limited company can help landlords.

Building a prosperous Buy to Let portfolio can come with a lot of expenses (including some unexpected costs). So, it’s easy to understand why so many landlords have started managing their rental business through a limited company (LTD), to take advantage of the tax benefits.

In this article, we look at how to set up a limited company, and why it could be the preferred route for many landlords.

Why should I consider setting up a limited company?

Let’s look at some of the key benefits:

• A limited company can hold multiple properties and keep your assets under corporate protection - Your property portfolio will be owned by the LTD. This means that you can keep these assets separate from your personal assets (e.g. your own home) and you can also reduce your personal liability. But, just to note, your personal property can still be at risk if you’ve used it as a security.


• A limited company will pay tax on profits instead of income - Instead of paying income tax as an individual, the LTD will pay Corporation Tax on any profits made. Since Corporation Tax is charged at 19% and 25% (depending on profit amount), there can be significant benefits for higher rate taxpayers who might personally be charged 40% or more. This means you could be left with more capital to re-invest in your portfolio.

But a limited company does come with some limitations and disadvantages that you will need to consider before setting one up – and it’s prudent to make sure you’re seeking the relevant, impartial, expert advice before making any decisions on how to structure your business and investments.

For example:

• Business running costs – Setting up and maintaining any limited company has associated costs. These include, but are not limited to, incorporation tax, annual tax returns, and accountancy fees.


• Mortgage options – Lenders may view limited companies as a riskier investment than an individual borrower, as LTDs have a reduced liability. This means that it can be harder to get a Buy to Let mortgage.


• Potentially higher costs to sell – If you sell a property that is owned by a limited company, you won’t need to pay Capital Gains Tax. Instead, you’ll pay Corporation Tax and won’t be able to use your annual Capital Gains Tax exemption, potentially meaning that you’ll pay more. Check out our guide to Capital Gains Tax to find out more.


• Complexity – Quite simply, you’ll be running a business, with all the associated administration. It can be complex and may require more management than some landlords would like.

Do I still own the property when I buy it through a limited company?

Your company will own the property and, as you own your company, you’ll ultimately own the property. If you have a mortgage on the property, your lender will still have the same rights over the property should you fall into arrears as with any other mortgage.

I currently own a rental property. Can I transfer it to my limited company?

Yes, you can. However, it’s rarely cost effective with only one or two properties.

That’s because, in most cases, you’ll personally need to sell the property, and your company will then need to buy it. This means you’ll have to pay Capital Gains Tax personally on the sale, and your company will need to pay Stamp Duty on the purchase (with a surcharge which applies to Buy to Let investors and limited companies). You may also have to pay early repayment charges if you’re exiting your current mortgage during a fixed term.

How do you set up a limited company?

Firstly, you can ask your accountant to set up your limited company if you’re not comfortable doing it yourself. Alternatively, you can do it online via the government’s website which includes a step by step walkthrough of the process.

Next, you’ll need:

• A company name - You’ll need to choose something that nobody else has – and you can search the existing register to see if someone else has used your idea before.


• A company address - This must be a physical address in the UK; you can use your own home address but be aware this will be visible on the Companies House register. If you have an office, consider using that instead.


• At least one Director - They need to be at least 16 years old.


• Details of the shareholders - The shareholders are the owners of the business and can be the same as the directors. You need at least one but can have as many as you like.


• A five digit SIC code – You’ll need to find the Standard Industrial Classification code that applies to the area of work that your business will trade in. For most landlords, this will be ‘68209 - Other letting and operating of own or leased real estate’. However, it’s worth checking the other property related codes in Section L – Real Estate activities to see if there is a more relevant option.


• A memorandum and articles of association - These record the shareholders’ legal agreement to form the company, and the written rules on how the company will be run. There are templates available on the government website.


• Details of any people with significant control (PSC) - This includes anyone with voting rights or more than 25% of the shares in the business.

How could we help?

As property finance experts with common sense, we have decades of experience helping limited companies access the right finance products to grow their portfolios.

If you’re applying for a Buy to Let mortgage or secured business loan, we’ll simply ask to see your corporate structure chart and identify any shareholders involved. We can also look at the wider business group and you – the individual behind the application – when assessing affordability if we need to. This means we can factor in projected rental income, cash flow statements and net worth statements to make a decision. We’re also able to factor in any other income if rental income alone won’t sufficiently cover your monthly payments, such as ‘top slicing’ with personal income.

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