Buying buy to let property with a limited company
Owning rental properties in a limited company can offer several tax benefits in the UK. Some of the key advantages are:
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- Lower corporation tax rate: Limited companies are subject to corporation tax, which is currently set at 19%. This is lower than the higher rates of income tax that can be applied to rental income for individuals, which can reach up to 45%.
- Lower corporation tax rate: Limited companies are subject to corporation tax, which is currently set at 19%. This is lower than the higher rates of income tax that can be applied to rental income for individuals, which can reach up to 45%.
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- Claimable expenses: Limited companies can deduct a wide range of expenses from their rental income, including mortgage interest, repairs, and maintenance costs. This can significantly reduce the amount of tax owed on the rental income.
- Claimable expenses: Limited companies can deduct a wide range of expenses from their rental income, including mortgage interest, repairs, and maintenance costs. This can significantly reduce the amount of tax owed on the rental income.
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- Tax on dividends: If you take dividends from your limited company, you will not have to pay any personal tax on the first £2,000 (soon to be £1,000) of dividends received. Dividends above this , threshold are taxed at lower rates than income tax, making this an efficient way to take money out of the business.
- Tax on dividends: If you take dividends from your limited company, you will not have to pay any personal tax on the first £2,000 (soon to be £1,000) of dividends received. Dividends above this , threshold are taxed at lower rates than income tax, making this an efficient way to take money out of the business.
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- Capital gains tax: Limited companies can benefit from lower rates of capital gains tax if they sell their rental properties. The current rate for corporation tax on capital gains is 19%, compared to up to 28% for individuals.
- Capital gains tax: Limited companies can benefit from lower rates of capital gains tax if they sell their rental properties. The current rate for corporation tax on capital gains is 19%, compared to up to 28% for individuals.
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- Inheritance tax: Limited companies may also provide some protection against inheritance tax. If the shares in the company that owns the rental properties are passed on to heirs, they may not be subject to inheritance tax.
- Inheritance tax: Limited companies may also provide some protection against inheritance tax. If the shares in the company that owns the rental properties are passed on to heirs, they may not be subject to inheritance tax.
There are some potential drawbacks to owning rental properties in a limited company in the UK. Here are a few of the cons:
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- Higher upfront costs: Setting up a limited company can involve higher upfront costs compared to owning rental properties as an individual. You may need to pay for legal and accounting fees, as well as registering the company with Companies House.
- Higher upfront costs: Setting up a limited company can involve higher upfront costs compared to owning rental properties as an individual. You may need to pay for legal and accounting fees, as well as registering the company with Companies House.
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- Increased administrative burden: Owning rental properties in a limited company requires more complex accounting and record-keeping. This can be time-consuming and may require the assistance of a professional accountant or bookkeeper.
- Increased administrative burden: Owning rental properties in a limited company requires more complex accounting and record-keeping. This can be time-consuming and may require the assistance of a professional accountant or bookkeeper.
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- Limited mortgage options: Some mortgage lenders may be less willing to lend to limited companies, which could limit your options when it comes to financing your rental properties.
- Limited mortgage options: Some mortgage lenders may be less willing to lend to limited companies, which could limit your options when it comes to financing your rental properties.
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- Loss of personal tax allowances: If you own rental properties in a limited company, you may lose the ability to claim certain personal tax allowances and deductions. This could result in a higher overall tax bill, depending on your personal circumstances.
- Loss of personal tax allowances: If you own rental properties in a limited company, you may lose the ability to claim certain personal tax allowances and deductions. This could result in a higher overall tax bill, depending on your personal circumstances.
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- Limited flexibility: Owning rental properties in a limited company can limit your ability to make changes to the ownership structure or transfer ownership to family members. This could be a disadvantage if you are planning for long-term estate planning or succession planning.
- Limited flexibility: Owning rental properties in a limited company can limit your ability to make changes to the ownership structure or transfer ownership to family members. This could be a disadvantage if you are planning for long-term estate planning or succession planning.
It’s important to carefully weigh the pros and cons of owning rental properties in a limited company before making a decision. It’s recommended to seek professional advice from an accountant or tax advisor to ensure you understand the full implications of this approach.
At Finanche we daily advise individuals and companies on the best structures for them. Contact us today for a free non obligation chat about your circumstances.