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Are Ltd companies really good for landlords?

No, says leading property and buy-to-let tax expert Jonathan Amponsah of The Tax Guys. Here's why.

Jonathan Amponsah

Jonathan Amponsah imageUnsurprisingly there has been a rush of people transferring property into limited companies following the announcement that mortgage interest relief will disappear for buy-to-let landlords. This change is being phased in between April 2017 to 2020.

Property tax imageWith a limited company any net profit will be taxed at the lower company tax rates of 20 per cent. You also get other benefits including credibility and limited liability.

Too good to be true? Possibly, as you may find yourself facing unnecessary tax bills and costs. Here are five common pitfalls that landlords need to be aware of:


If you transfer the property from yourself to the company (effectively the company buys the property) then the company could easily become liable to pay stamp duty land tax. So whilst you’re trying to reduce income tax, you can wind up paying the same amount or more in stamp duty land tax if you’re not careful.


If you transfer the property to the company, you will be treated as if you’ve sold the property to the company. If the property has gone up in value since you originally bought it, you’ll have to pay up to 28 per cent capital gains tax on the difference, subject to any tax reliefs and allowances. If you have a few properties to transfer, seek advice about a relief you could claim to defer your capital gains tax.

These first two points could potentially negate any short term savings you get through mortgage interest relief in the company you’ve formed.


Because you‘re transferring the property from yourself to a company, the company may not get the same mortgage rate that you‘re currently on – in most cases the interest rate is higher for commercial or company mortgages than it is for individuals. So do take extra care because this additional bank charge will increase your costs over the full term of the mortgage.


Once the property is in a limited company, it is owned by the company, not the landlord. From a commercial point of view, this leaves the property exposed. If something happens to the company, all its assets will be exposed including the property that you put in it.


What if you wish to sell the property in the future? A company will be paying 20 per cent corporation tax on the profit it makes. When you sell the property, the money from the sale will go into the company. The company will pay Corporation Tax on the profits and the balance of the money from the sale will remain in the company. To get access to the funds to enjoy you’d need to take it out of the company either as salary or dividends or other means. You’d then pay additional tax on that income. When you take the above into account the idea of transferring your BTL property into a limited company starts to sound rather bleak.

It’s unwise to move buy-to-let properties into a company without taking professional advice.

However, there are some situations where you can reduce or eliminate the pitfalls above and enjoy some of the benefits of holding your properties through a limited company.

If you’re buying a new property then a limited company could be a good idea. But if it’s an existing property and you’re only managing one or two properties, I’d say: don’t bother. You’re better off paying just a little bit of tax now instead of triggering all these taxes and then having to pay additional double tax if you sell the property in the future.


If you currently run your BTL through a properly arranged partnership business, then transferring into a limited company could be a good idea because some of the tax burdens above could be reduced.


Landlords who want to leave their BTL properties to their children could consider the pros and cons of a Family Investment Company as an alternative to a Trust.

The advice is clear – don’t rush into this. Given the implications of making the change it’s unwise to move BTL properties into a company without taking professional advice. As a general ‘rule of thumb’, accepting that personal circumstances vary, I would say that if you only have one or two existing properties in your name, it‘s not a good idea. With more properties (say six to ten), it might be worth looking at how you can achieve the benefits of a limited company without triggering unnecessary taxes and costs.

Jonathan Amponsah CTA FCCA is an award winning chartered tax adviser and accountant and founder and CEO of The Tax Guys. www.thetaxguys.co.uk

November 29, 2017

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