Build your Buy-to-Let Property Portfolio through a Limited Company

In this podcast, we discuss how to build a buy-to-let property portfolio and explore the strategies necessary to acquire properties through a limited company.

Hello and welcome to this podcast brought to you by Charles Cameron and Associates. Today we will discuss how to build a buy-to-let property portfolio and buy properties through a limited company. 

A property portfolio is a collection of investment properties that are usually owned by an individual or company and rented out to tenants. This can provide a return on investment via the monthly rental income received from the letting of the property, and benefit from property value rises. It is also important to consider that properties can depreciate in value which could have an adverse effect on your investment. Rather than buying an investment property in an individual’s name, many people decide to buy the property under a limited company instead. So, let’s start by defining what a limited company buy to let actually is.  

A Limited Company can be formed to specifically finance and manage buy-to-let property portfolios. The directors of the company purchases and owns the property in the company name, rather than as individuals This can be beneficial for tax reasons, especially if the directors are higher-rate taxpayers.  

Recent tax changes have had significant negative effects for owners of buy-to-let properties. Before the Government reform, the mortgage interest costs could be deducted as an expense before any tax calculations were made on the income. As the majority of buy-to-let mortgages are often taken out as interest-only mortgages, all the costs of the mortgage could be offset against any tax bill, but the reform removed the mortgage interest costs as a deductible expense, and put in other criteria, making landlords pay tax on   the gross rental income. Simply put, they were paying tax on income they did not get as profit. This has resulted in many landlords restructuring their portfolios to purchase investment properties through a limited company instead in order to still gain some tax efficiencies.  

A limited company buying investment properties must be set up as an SPV (Specialist Purpose Vehicle) limited company and have the correct SIC codes, which stand for Standard Industrial Classification of economic activities. 

Limited company buy-to-let tax benefits could include paying corporation tax at 20% (instead of personal tax at 40%- 45%) as well as the ability to claim the mortgage repayments in full, which would result in paying less tax overall. Though it is worth noting that mortgages for limited companies generally have more expensive interest rates. Please note that a mortgage broker, even a buy-to-let specialist, is not qualified to give tax advice, so it is essential that you consult an accountant before deciding on how to structure your investment portfolio. 

With the above tax pros, you also have some cons when considering a limited company buy-to-let. Mortgages for limited companies are harder to obtain, as there are fewer lenders in this market, and they offer a lower loan to value, meaning that you may not be able to borrow as much as you could on a personal buy to let mortgage. Therefore you may need to put down a bigger deposit. Also, a limited company buy-to-let mortgage application, may need more supporting documentation and come with a higher lender fee.  

One common misconception for limited company buy-to-let is that there will be no stamp duty charges. Unfortunately, this is not the case, in fact there is a 3% stamp duty surcharge, on top of the standard stamp duty rate for investment properties, with they are bought by an individual or a limited company. 

Before you decide if you want to set up a company to manage your investment property portfolio, you need to decide what your future plans are. Think carefully, and remember, you should always get independent and professional advice from a fully qualified mortgage adviser to understand and explore all available options. Our team of friendly brokers are waiting to support you!  

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