Landlords, is it worth setting up as a limited company?

Property is one of the most accessible forms of investment, and an area most people feel comfortable in. Although it’s familiar territory there can be a big jump between owning your family home, and running a successful property portfolio as a landlord. Running a limited company isn’t as scary as it might sound so why not explore it as an option?

Why form a limited company?

Simply put – tax rates. As an individual earning profits from your property you can be taxed at your personal tax rate. Depending on other income this can be up to 45%, which is a lot. You will also pay capital gains tax. As a limited company you’ll pay a lower rate on both, and could avoid future fees. It’s also relatively easy to set up a limited company. You can find out more here. 

When should I form a limited company?

Investment portfolios can be a sizeable asset to pass down in inheritance, or cash in later in life as well as offering short term returns. For many paying tax at your personal tax rate on earnings works well. However, if you have, or are planning to build, a large folio, or are paying tax at a higher rate it might be wise to explore the possibility of establishing a limited company. Doing so could limit taxation, including inheritance tax, on your valuable profits.

Transferring ownership from a private individual to a company owned property may be cost prohibitive. Buying new property through a limited company while retaining historic property through private ownership might be cost effective.

Considerations for trading as a limited company

Taxation on company rental property:

As a company rental profits are taxed at a lower rate of 20%, as long as the profit is below £300, 000.

Corporate capital gains tax:

Additionally corporate capital gains tax is charged a reduced rate of 20%. If you’re currently paying 28% this is a substantial saving. The savings you make from reduced rates as a limited company could allow you to save or reinvest.

Inheritance

Want to pass down your property portfolio? Owning a property through a company means you can make your children shareholders, avoiding inheritance tax and the associated costs of transferring deeds.

Accountability

The costs of setting up and of running complex accounts may be a deterrent. Understand what is required of you as the director of a limited company prior to doing so.