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The pros and cons of using a limited company for buy-to-let property investment.

In 2015, Chancellor George Osbourne, as a part of his Autumn Statement, announced what many have described as an unprovoked attack on the buy-to-let property investment market. With upcoming cuts to tax relief and a 3% increase in stamp duty on investment property being introduced next month, many landlords are considering throwing in the towel. Others, however, have sought out loopholes and workarounds to avoid these added costs associated with investment property.

As part of the plans, Osbourne announced a number of exemptions from the tax increase; including for corporations and holders of portfolios of more than 15 investment properties. With the exemption of corporations, many are considering founding their own limited companies through which to own and manage their property portfolio. While this strategy does have its benefits, there are also a significant number of drawbacks that investors must be aware of before considering such a strategy. Below is our list of the pros and cons of managing your property portfolio through a limited company.


  • Higher tax relief – From 2017 to 2020 the amount of buy-to-let tax relief individual landlords can claim back on their investment properties will be progressively cut from a maximum of 45% to 20% for top rate taxpayers. This change, however, does not affect Limited Companies. Therefore, if you are a top rate tax payer, the tax payable via a Limited Company would be lower than the tax on your individual income.
  • No tax on dividend withdrawals up to £5,000 – from April 2016, the Dividend Tax Credit will be replaced by a new tax-free Dividend Allowance of £5,000. This means you can potentially receive tax-free dividend income of up to £5,000 from your investment properties.
  • No income tax when reinvesting profits to secure further properties – you could grow a BTL portfolio much more quickly within a Limited Company, as there will be no income tax on the retained profit, thus allowing more cash to be re-invested. Although corporation tax is payable on trading profits (20%; 2015/16; reducing to 18% by 2020), this is notably lower than the higher income tax rate (40% for £31,786 to £150,000; 2015/16).
  • Mortgage interest payments declared as a company expense – in declaring mortgage interest payments as a company expense, landlords will be able to avoid the new tax burden forced on individual investors.
  • Personal funds can be drawn back out of the company – any advances investors make to the Limited Company (e.g. the mortgage deposit), can be drawn back out of the company by way of Directors Loan.


  • Tax on dividends over £5,000 – when accessing cash through dividends, sums that exceed the £5,000 tax-free allowance will be liable to tax charges. Basic rate tax payers will pay 7.5%, higher rate payers will pay 32.5% and additional rate payers will pay 38.1% on these funds.
  • No Capital Gains Tax allowance when selling a property – individuals selling a property have a £11,100 Capital Gains Tax allowance (2015/16). When selling property through a limited company, however, this would not be the case.
  • Overhead costs – there are numerous additional costs associated with setting up and running a limited company. This includes the preparation of accounts, company tax and corporation tax calculations for HMRC, filing at Companies House, legal fees, and annual auditing. An accountant is also likely to charge higher fees when preparing accounts for a Limited Company.
  • Higher mortgage rates – most lenders will charge higher interest rates and fees for Limited Companies compared to individual buy to let mortgages.
  • Reduced choice of lenders and mortgages – many lenders do not offer mortgages to Limited Companies and often, if they do, the product range is much smaller. This limited supplier base also contributes to lenders’ ability to charge higher fees, as there are few alternatives available.
  • Added cost of transferring properties - transferring existing investment properties from an individual name into a Limited Company structure is more complex than purchasing new properties within. Both Capital Gains Tax and Stamp Duty Land Tax (SDLT) would be liable to pay on the transfer of properties from an individual to a limited company. Essentially landlords would be buying the property from themselves, and paying all of the tax costs associated with the transaction.

How property investors balance out these pros and cons will largely depend on their individual circumstances and future intensions. Landlords who want to expand their portfolio via a Limited Company structure may be willing to absorb the one off costs of transferring properties in order to take advantage of the long-term financial incentives.

Certain landlords, for example those with investment properties worth more than £500,000, may also need to consider the added cost of Annual Tax on Enveloped Dwellings. This will contribute to further financial costs but, once again, depends on the personal circumstances of the property investor.

There is, unfortunate, no one-size-fits-all method of weighing-up this strategy. Investors must be sure to do their calculations based on their own circumstances and, and seek expert advice on which structure would be most beneficial for them.

Another strategy that property investors may consider in order to avoid the added costs of the buy-to-let market is investing within alternative property investment sectors. Both care home investment and hotel investment are exempt from the increase in stamp duty, and offer some fantastic financial returns. For more information on the opportunities available, contact our team on +44 (0)1202 765011 or email [email protected]


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