This type of arrangement has become increasingly popular, especially among landlords with multiple properties, due to potential tax benefits and changes in tax regulations.

How It Works

Property Ownership: Instead of owning the property directly as an individual, the property is owned by a limited company that you (and potentially others) set up specifically for this purpose. This type of company is often referred to as a Special Purpose Vehicle (SPV), which is a company formed solely to hold and manage buy-to-let properties.

Mortgage Structure: The mortgage for the buy-to-let property is taken out in the name of the limited company rather than in your personal name. Many lenders offer buy-to-let mortgages specifically designed for limited companies, though they may have stricter lending criteria and require higher deposits (typically 25-40%).

Tax Benefits:

• Corporation Tax: Any rental profits generated by the property are subject to corporation tax. This can be advantageous for higher-rate taxpayers.
• Mortgage Interest Relief: Unlike individual landlords, who can only deduct a limited amount of mortgage interest from their taxable income, limited companies can offset the full cost of mortgage interest against their profits.
• Dividends: As a director and shareholder of the company, you can pay yourself dividends from the profits, which can be more tax-efficient than drawing income directly from rental profits.

Costs and Considerations:

• There are additional administrative costs involved in running a limited company, including filing annual accounts and possibly paying for professional accounting services.
• Mortgage availability: Fewer lenders offer limited company buy-to-let mortgages, but the market is growing. Interest rates on these mortgages may also be slightly higher compared to personal buy-to-let loans.
• Capital Gains Tax: When selling the property, capital gains tax would be applicable, but it would be taxed as part of the company’s profits.

Why Landlords Use Limited Company Buy-to-Let

This approach is especially attractive to landlords with multiple properties, as the tax benefits can be significant. It also allows investors to reinvest profits into more properties, as the tax burden is often lower than it would be for individual landlords.

However, this structure might not suit everyone, especially smaller landlords or those with only one or two properties, due to the costs and complexities of running a limited company.