The New Normal - Why Investing in Property Via a Limited Company Makes Better Buy-to-Let Sense
- Moubin is Founder and CEO of GetGround, the UK's only buy-to-let limited company creation and management platform. Training initially as a medical doctor, Moubin then worked for Apax Partners and later McKinsey & Company before founding GetGround in 2019.
Perhaps you’ve already heard about investing in buy-to-let via a limited company structure. Or maybe you’re brand new to it and looking to find out more.
Either way, you’ve come to the right place; in this learning series, we’ll take you through the benefits of company buy-to-let: what it is, where it comes from - and importantly, how you stand to benefit.
Why Invest Via a Limited Company Structure in the First Place?
Against the backdrop of a global pandemic and inflation reaching a forty year high, the need for property investors to seek out better ways of making their buy-to-let investments work efficiently is most certainly on the rise. It’s no coincidence that the proportion of limited companies formed to invest in property is increasing year on year to help address this. Almost half of property purchases (regardless of the size of the landlord’s portfolio) were completed through a limited company last year.
But just a few years ago, purchasing an investment property in your personal name was tax efficient for landlords as they could deduct their mortgage interest and finance costs from taxable rental income. A significant incentive to start investing in property, landlords could save thousands of pounds in the process and earn a greater profit, making it an attractive alternative to traditional savings.
However, these benefits came under increasing Government scrutiny and, as a result, they sought to regulate the buy-to-let market by introducing new rules that changed the gains that property investors could make. First introducing a 3% stamp duty surcharge on the purchase of additional properties, then reduced the amount of relief on mortgage interest to its current form (basic-rate tax credit of 20%).
These regulatory changes hit property investors hard, forcing many to consider a new route through company formation instead.
So, What Are the Benefits of a Limited Company?
There are three core reasons why a limited company makes sense if you’re thinking about investing in property:
- Firstly you can offset all of your mortgage interest against profits from your rental income. As the corporate tax rate is 19% (on the first £50k of profits, provided that you do not control any other companies), there is a massive saving to be had. As a point of comparison, the tax rate under a personal name would be 40% (or higher at the higher tax rate).
- Secondly, you’ll get flexibility on how to extract profit from your property business. These days, it’s common to see a mix of salary, dividends, and director’s loan payments.
- Finally, you’ll get added protection. In the event that things go unexpectedly with your investment, your limited liability means that your personal assets won’t be at risk.
What Else to Consider
While limited company structures come with a host of benefits, they also come with a number of responsibilities. As a director of a limited company, you’ll be responsible for:
- Preparing and filing articles of association
- Registering with Companies House
- Filing Companies Act compliant accounts
- Maintaining company records
- Reporting any changes (e.g. a change of address)
- Completing a corporate tax return
Well, at GetGround, we’re here to do that work for you. Simplifying the complex is what we do best when it comes to structuring and optimising your buy-to-let limited company for business success. Find out more on how you can benefit, here.