Buying a buy-to-let property through a limited company.

The Buy to Let tax changes have certainly taken their toll on many landlords, many of whom could be finding their profitability seriously compromised. This has meant many landlords are turning to setting up or incorporating their properties into limited company arrangements to avoid being hit with additional tax. This could be an option for you, but how can you go about it? We take a closer look at some of the most FAQ’s we get on limited companies, tax and how to set up a limited company.

The Buy to Let tax changes have certainly taken their toll on many landlords, many of whom could be finding their profitability seriously compromised. This has meant many landlords are turning to setting up or incorporating their properties into limited company arrangements to avoid being hit with additional tax. This could be an option for you, but how can you go about it? We take a closer look at some of the most FAQ’s we get on limited companies, tax and how to set up a limited company.

The quickest way to set up a company is to register it at Companies house. It only costs £12 and will usually be set up within 24 hours. as a limited company with Companies House. For many who are less experienced and for those looking to set up companies with more complicated structure you may wish to ask an accountant to do this for you. It can usually be done for a few hundred pounds. It is usually better only to place your properties in the companies and keep other assets and businesses out of it as this is likely to make obtaining mortgages easier.

You will need to provide details, such as your new company name, trading address, the director(s) names, details of the company’s shares & shareholders and what it does (this will require you to check your SIC code, or standard industrial classification of economic activity especially for applying for mortgages).

You’ve set up a limited company for tax purposes, and will now need to pay corporation tax on your company’s profits. However, this means there are a few more steps in the buying process when buying and selling your BTL properties, and if you already have a portfolio, you’ll need to start the process of transferring those over to your company. It will be better to take specific professional advice from the outset before attempting to do this on your own.

In order to transfer your BTL’s into a limited company, the properties must be legally transferred. However, there will be 3 main costs to consider:

All purchases of residential property within a limited company will be subject to the 3% surcharge
You may qualify for stamp duty relief if there is more than 1 owner, using the benefit of Paragraph 18 & 20 of the finance act 2003 ask a good accountant about this.

This is situation is a little more complex, but a landmark ruling by the Upper Tier Tax Tribunal (Elizabeth Moyne Ramsey v HMRC [2013] UKUT 266 TC) established that in certain circumstances a landlord could claim incorporation relief under s162 Taxation and Chargeable Gains Act 1992 thereby deferring any capital gains tax until such time as the property is sold by the acquiring company.

The sale of your BTL’s to the limited company will involve redeeming any existing buy to let mortgages as well as arranging a new limited company mortgage. If the existing mortgage is still within its ERC term then ERCs will be payable.
Many Buy To Let lenders who want pre 2008 loans to be repaid will offer to drop early redemption penalties, ask them.
You must take independent tax advice from a professional and this does not constitute tax advice and can not be relied upon to be relevant to your specific situation.

Once you’ve created or incorporated, you will find that your mortgage options have changed. You might seem the pool of lenders drastically reduced, but the number of BTL mortgages available to limited companies has significantly grown in recent years, as mortgage lenders respond to this rising demand. I would usually go and see 5 of the biggest clearing banks of the high street to establish a commercial property lending relationship. Ask to see the property specialist, this will usually open a lot more doors. Packaging a few properties up that are owned in a LTD company often means that the bank will be more competitive and rates can be in the mid 2% range for a good chance of debt. Some will then approach a broker which may be helpful if you are earlier in your property investment journey. Don’t be scared by capital repayment, rates for these types of mortgages can often be less due to the lender types that offer them.

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