Should You Buy to Let as a Limited Company? [Pros and Cons Updated for 2023]

“It’s become one of the biggest key trends in UK property investment over the past few years – but should you buy to let as a limited company?”

I wrote this in 2020, and it is still an important consideration for landlords. However, the tax landscape has changed considerably since then, so an update is in order.

There are still advantages for landlords to operate as limited companies as opposed to sole traders, however the tax benefits are less clear than they were, with changes to dividend tax allowances, capital gains tax (CGT) and corporation tax rate and bands.

All buy-to-let investments should be treated as a business, but the vehicle you choose to manage that business can have profound and long-reaching consequences for the amount of work involved and the tax implications.

If you’re a higher rate taxpayer, you should definitely read on, as building your property empire as a limited company may mean paying corporation tax (at a rate between 19% and 25%) compared to paying as a private individual (at a rate as high as 45%).

But that doesn’t necessarily make it the best solution for all investors. 

I’ve revisited this subject, in part because of recent changes, but also because all buy-to-let investors are looking for the most tax-efficient manner of handling their investments. 
DISCLAIMER: Please do not consider this tax advice. We’re highlighting publicly available information and our own professional insights. We always recommend you speak to an accountant about your circumstances before making any decision.

The pros of investing in property as a limited company

First, let’s begin by looking at some of the biggest advantages when you buy to let as a limited company. 

You’ll pay a much lower rate of tax

This is definitely the biggest advantage for higher rate taxpayers. It means that instead of paying income tax of up to 45%, you’ll pay corporation tax on your profits at a much lower rate of between 19 and 25%.

This was confirmed in the Spring budget on the 14th March 2023. The UK government says the following:

“At  (the) Spring Budget 2021, the government announced changes to corporation tax rates from 1 April 2023 onward.

Finance Act 2021 included legislation to impose the charge to corporation tax for financial years 2022 and 2023, and to increase the main rate of corporation tax to 25% for financial year 2023 in line with the announcement at Spring Budget 2021.

Legislation will be introduced in Spring Finance Bill 2023 to charge corporation tax and set the main rate at 25% and the small profits rate at 19% for the financial year beginning 1 April 2024.”

The small profits rate of 19% will apply to companies who have annual profits of £50,000 or less. The 25% rate applies to companies declaring profits in excess of £250,000 per annum.

The fun bit falls in between the two, the ‘marginal relief’ rate. The UK government has kindly created a marginal relief calculator to help calculate the rates and liabilities between these two points.

A simple example with £95,000 as the profit to be taxed delivered a marginal relief rate of 22.5%. 

This has been a more popular way of investing property since around 2017, when the tax relief landlords could claim on their mortgage interest (as much as 45%) started to be gradually reduced. 

For example, before 2017, it used to be the case that if you were paying the highest rate of tax, with an interest-only buy-to-let mortgage of £1,500 per month, you could have claimed back £675 in tax relief from HMRC (click through to learn more about Section 24). 

Now, as a landlord, you’ll only be able to claim relief at the basic tax rate of 20% – so, if we apply the example above, that would be £300.

Income through dividend

One of the advantages of buy-to-let as a limited company is being able to take some of your income in the form of dividends, which are taxed at a different rate to PAYE income.

Until recently, shareholders enjoyed a £2,000 tax-free allowance on dividend payments, this has now been reduced to £1,000 and in 2024 will fall to £500. Any dividends over this amount will be taxable.

The applicable tax rates can be found in this article from the Mercia group. Remember that your company will already have paid corporation tax on any dividends paid to shareholders. Again, your accountant is your best friend!

You’ll have limited liability

The second biggest advantage? If you buy an investment property and run it as a limited company, it becomes legally separate from your personal affairs. This limited liability essentially means you are no longer personally liable for any losses. 

Reduce inheritance tax 

You could make one or more of your family members a shareholder! I’m not a tax expert, but I know it’s popular and, when property investing as a limited business, it seems like a top way of reducing all tax, including inheritance tax. 
NOTE: I strongly recommend seeking advice from an experienced accountant/tax expert on how to do this in order to ensure the desired results.

The cons of buy to let as a limited company

If the tax benefits above are beginning to sell the idea to you, this is the part where you may think twice about purchasing buy-to-let property as a limited company. 

Capital gains tax, LBTT and ADS

Where you already own investment property, moving existing buy-to-lets from a personal purchase into a ltd company might seem simple, but, as a property transaction, it will still be liable to LBTT and ADS… and possibly even capital gains tax. 

So, if you’re going to buy as a limited business, do it now – before you do anything else – and certainly before you start building your UK buy-to-let portfolio! 

TIP: If you already have multiple properties as a private landlord, a good way to avoid ADS is by “selling” a portfolio of six properties to your limited business. This seems to work out quite nicely most of the time. 

ADS and LBTT apply whether you’re operating as a limited company or a sole trader. You can read more about ADS here, and there is more information about LBTT available from the Revenue Scotland website.

ADS was previously 4% until the Scottish Government raised it by 2% to 6% without warning in December 2022, sending a wave of concern through the private rented sector (PRS) in Scotland.

As things stood in 2020, capital gains tax was 28% for higher rate taxpayers, whereas for basic rate taxpayers it depends on the size of your gain, along with your taxable income.

Back then, you had an annual exempt allowance (AEA) of £12,300 against capital gains. This has been slashed to £6,000 in 2023 and will fall to £3,000 in 2024. Again, speak to your accountant about the best ways to handle these changes to your benefit.

You can learn more details on this UK Government page.

TIP: If your limited company sells property in the future, you would not have to pay capital gains tax. Instead, the company would have to pay corporate tax on the profit. CGT will be payable if you transfer the results of a sale to yourself from your company.

Paying higher mortgage fees

As a limited company, the chances are you’ll be charged a higher interest rate and other fees for your buy-to-let mortgage than if you were an individual buy-to-let landlord. 

Again, be aware that it’s not recommended to change ownership of the property to a private limited company if you already own the property, as you may also have to pay additional early repayment fees and other legal costs. 

The extra time and costs involved

Setting up and running a limited company will take up more of your time and money. There are statutory requirements which just don’t apply to sole traders. That said, with a good accountant you shouldn’t find them too onerous.

The first thing you’ll need to do is to set up your company via Companies House. You can do this for as little as £12, but for a same-day service you can pay £100. 

Once you’ve registered your company, you (or your accountant) will have to prepare and submit detailed accounts, company tax and corporation tax calculations to HMRC. 

You may also incur extra costs from your accountant (if you have one) such as paying a higher rate for their services – along with additional legal and auditing fees. 

Advice from the property pros 

If you’re seriously considering buy-to-let as a limited company, it’s a good idea to ask yourself whether you’re a property trader, or property investor – as my advice will differ depending on which you are. 

If you’re someone who loves the challenge of buying a property to do up, rent out and then sell on before moving onto the next – in the way that it almost becomes an art form – you’re most likely to be classed as a property trader. 

If so, I would recommend you consider setting up a property company, rather than pay capital gains tax on every property you trade. 

If you plan to invest in property for the long haul, I would carefully consider all of the points above, and seek professional advice from an experienced accountant and tax specialist. 

And, if you’re considering transferring property into a limited company, here’s an extra little tidbit of advice to bear in mind, from Syed Ausat, a good contact of mine and professional accountant at Shears and Dube: 

“If you choose to transfer the property to a limited company, this must be transferred based on market value, which is why it’s essential to get a professional valuation carried out. 

“Keep this in your records, for your defence, if HMRC challenges your valuation in future, and ensure it’s in your company name rather than your personal one. If you are transferring property from your personal name to a limited company, then you also have to get permission from the Lender, and some lenders may also insist on getting a personal guarantee (PG). 

“Please note, transferring properties from one owner to another are likely to attract Stamp Duty Land Tax (SDLC) and legal costs as well apart from Capital Gain Tax ( CGT).” 

TIP: If you are looking to invest in buy-to-let, there is a great way to save on a lot of the initial setup costs. Buying tenanted property can help you save around £30k – and receive instant rental income on Day 1. Learn more about the benefits via our blog.

In summary… 

Thanks for taking the time to read and digest my thoughts shared here. I hope this blog has been of help when deciding whether or not you should buy to let as a limited company in the UK.

In the right circumstances, the advantages are hard to ignore. But keep everything in mind when considering the extra costs and time involved in running a limited company, and weight it up based on your own circumstances.

Remember, I’m in no way a trained accountant, so before you go any further, I would highly recommend seeking professional advice from an expert – as I’m sure you would anyway. 

If you’re interested in purchasing a tenanted property in Scotland – either as an individual or as a limited company – and receiving rental income on Day 1, feel free to get in touch today. 

Myself, or my business partner, Ross, should be happy to talk you through your options.

Written by Chris Wood, MD & Founder of Portolio

Get in touch on 07812 164 842 or email [email protected]