As a landlord, you may have noticed a growing trend in company-led buy to lets in more recent years.
With the rules under Section 24 (the removal of tax relief on mortgage interest), this has made a lot of sense, with more landlords choosing to operate under a company name because of the tax efficiencies. This is growing all the time.
If you are interested in this approach, you may wonder what it will actually look like in practice. This is what you can expect.
Filing accounts with Companies House
When you switch to buying to let under a limited company structure, how you pay taxes changes quite significantly.
When you are running a company, you must file annual accounts with Companies House – found on gov.uk.
In many cases, landlords who operate under a business decide to hire a professional accountant, which helps them stay tax efficient and compliant.
Borrowing process
The process of buy to let borrowing through a limited company is largely the same as personal buy to let borrowing, though there are some key differences in how lenders generally approach it.
Lenders assess both the company and the individual directors, but place greater emphasis on the rental income and viability of the business, rather than just the borrower’s personal finances. Personal credit history and guarantees are still typically required.
Mortgage rates for limited company buy to lets may be slightly higher than for personal buy to let, although the gap between them has narrowed in recent years. Most lenders require a deposit of around 25%, with lower deposits available only in limited cases.
One advantage of borrowing through a company is that rental income is usually stress-tested more favourably, which can allow landlords to borrow more against a property compared to personal ownership, depending on the lender and circumstances.
If you are interested in investing in property under a company name, but need some mortgage advice, Commercial Trust can help you. As a mortgage broker, they can help you access a range of lenders, so you can find a lender that works for you and your business model.
Reinvesting and growing
Many choose to incorporate for the tax benefits. Corporation tax and mortgage interest relief are often more appealing than personal income tax – but not always, so professional tax advice is essential (a mortgage broker is not qualified to give this).
Since these benefits can free up landlords’ savings for further property investments, the limited company model is ideal for those who wish to grow their portfolio.
Many landlords benefit from having a diverse portfolio, since different property types can achieve greater yields, for example Houses of Multiple Occupation (HMOs), holiday lets and short-term lets.
Separating business accounts from personal finances
One big change that comes from operating under a company name involves having separate finances from your personal accounts.
As such, you will need to open up a dedicated business account and avoid mixing your personal finances with any company funds you have earned. This ensures that everything remains streamlined.
Incorporating may not be the desired path for landlords in every circumstance, but for a growing majority, it is the preferred option.
