Purchasing a Buy to Let Company: Advantageous to Investors

Investment in property has always been a lucrative financial choice, and in recent years, having a buy to let company has proven to be a successful investment vehicle for real estate investors. Buy to let businesses allow investors to acquire and hold leasehold property in a limited company structure, offering various fiscal and taxation benefits.

It is advisable to learn about the advantages and problems with the acquisition of a buy to let business before making an investment choice.

What is a Buy to Let Company?

A buy to let business is a limited company that is created to purchase and manage rental property. Unlike property investment personally, where individuals invest in property under their own name, the property is owned by the company and manages income and expenditure through a corporate vehicle. Similar to a Property SPV, this route has more freedom and financial advantages available to investors, particularly tax benefits and inheritance planning.

Advantages of Purchasing a Buy to Let Business

1. Tax Efficiency

Among the most significant advantages of purchasing and renting via a company is lower tax liabilities. As a private investor, rental gains are taxable on income tax, potentially up to 45% if the investor’s income is substantial. However, profits in a limited company are subject to corporation tax, which would be lower than higher band income tax rates.

In addition, companies can also deduct mortgage interest as an allowable business expense, a benefit denied to private landlords due to recent tax changes under Section 24 of the Finance Act.

2. Inheritance & Estate Planning

For those investors who would like to pass on their property portfolio to their heirs, a buy to let company structure gives greater flexibility within estate planning. By having properties owned by a company, investors can pass shares instead of passing the assets themselves, with the potential to reduce inheritance tax bills.

3. Limited Liability Protection

Investment through a limited company provides limited liability protection, which ensures the personal wealth of investors is safeguarded against financial risks of owning rental property. This type of structure ensures security in the event of financial issues or legal liability.

4. Improved Financing Opportunities

Borrowers are discovering lenders more willing to offer competitive buy to let company mortgage products. Specialist mortgages will offer better interest rates and corporate borrower-friendly terms of lending, thereby making it easier for investors to expand their property portfolios.

Factors to Look at When Purchasing a Buy to Let Company

1. Higher Mortgage Fees

Mortgage interest can be deducted for business, but mortgages for limited buy to let company can cost slightly more interest compared to personal mortgages for buy to let. Company lending is perceived as riskier by lenders and therefore might result in a more costly borrow.

2. Compliance & Administrative Burdens

Having a buy to let company entails complying with company compliance duties, including:

• Annual filings at Companies House
• Corporation tax returns to HMRC
• Accurate accounting records

Investors need to be prepared for additional to-do administration work or hiring professional accountants to carry out this work effectively.

3. Capital Gains Tax Considerations

When rolling over privately owned assets into a limited company to which they are not attributed, investors may find themselves liable to pay capital gains tax on any gain in value since original acquisition. This tax concern needs to be fully assessed before reorganising an investment portfolio.

How to Purchase a Buy to Let Company

Investors may either purchase a new buy to let company or acquire an existing company with assets in the form of loans on property. The process involves:

• Creating a new limited company if starting from scratch.
• Due diligence if acquiring an existing company, to confirm that there are no hidden liabilities.
• Obtaining finance and mortgage approval in line with their own company-owned properties.

Structuring the company in a tax-efficient manner, with professional help from property accountants.

Conclusion

Purchasing a buy to let company is extremely useful for property investors as it offers tax efficiencies, inheritance planning benefits, and enhanced financial security. The administrative workload and taxation implications, however, have to be thought through meticulously prior to switching over. Investors are recommended to take professional guidance so that they are able to maximise the benefit of a corporate property structure and defeat any probable difficulties successfully. By using the benefits of a buy to let business, investors are able to create a profitable and sustainable property portfolio, thereby reducing taxes and achieving long-term financial prosperity.