1. Legal and regulatory requirements
Operating your rental properties through a limited company means complying with additional corporate regulations alongside the property laws all landlords face. Landlords must comply with the Companies Act, file annual accounts with Companies House, and maintain accurate financial records.
Additionally, they must ensure their properties meet all housing standards, including gas safety, electrical safety, and energy performance requirements. The dual compliance burden may take a little more time and incur additional costs.
However, operating through a limited company can provide a layer of legal protection. The limited company is a separate legal entity, which means the landlord’s personal assets are normally protected from the business liabilities. This can offer peace of mind, particularly in the event of legal disputes or financial difficulties.
2. Tax efficiencies and complexities
The tax rules for limited companies differ significantly from those for individuals. Holding property through a company creates different tax consequences that must be carefully considered, including the applicable tax rate on profits, the deductibility of interest, and the taxation of profits when extracted from the company. These factors can vary depending on individual circumstances and are subject to change.
It is essential for landlords to seek professional tax advice to understand their individual situations and the implications of setting up a Limited Company.
3. Financing buy to let properties
Securing buy to let mortgages through a limited company can be more difficult and expensive than doing so as an individual. With some lenders the application process may be more rigorous, where lenders scrutinise the company’s financial health, director guarantees, and business plans.
The Mortgage Works has supported landlords with Limited Company Buy to Let mortgages since 2018, and we’ve built a deep knowledge of landlords needs and continue to develop to offer the best experience for landlords.
Managing buy to let properties through a limited company could support landlords with retaining profits within their business. This, in turn could be reinvested to improve properties or grow a portfolio. Portfolio growth through the limited company could avoid the need to withdraw profits and incur personal tax liabilities before reinvesting.
4. Property portfolio management and long-term planning
Selling properties owned by a limited company can be more complex than selling personally owned property. Key factors to consider include:
- the limited company's liability to pay corporation tax on any gains, and
- potential additional taxes for shareholders when profits are withdrawn from the sale.
And, if looking to transfer a property out of the limited company, the process could trigger Stamp Duty Land Tax and Capital Gains Tax liabilities.
However, managing properties under one limited company could simplify accounting and administration efforts. It may support consolidated financial reporting, make it easier to track performance, manage cash flow, and plan for the future.
5. Building tenant trust and enhancing credibility
Tenants may view renting from a limited company as impersonal, or they may consider a limited company landlord to be better resourced and more reliable.
Regardless of whether a landlord manages their properties through a limited company or not we recommend; building trust, maintaining positive communication, and being responsive to tenants needs.
Within the industry, limited company landlords may experience a greater professional image when dealing with matters or negating activities relating to their properties like; working with letting agents, contractors, and lenders.
