We might have the option for you…
Following the increase in stamp duty for landlords in April, and the recent announcement following Brexit revealing plans to lower corporation tax, more residential property investors may benefit by going down the corporate or limited company buy to let route.
According to the Limited Company Buy to Let Index, the number of Buy-to-Let (BTL) mortgage applications completed by limited companies in the first half of 2016 rose to 30% of all BTL completions.
My guess is that figure will continue to rise.
With any investment strategy, there are pros and cons to taking this approach and every case is different. So what do you need to know?
There are four key financial advantages to using a limited company you can consider:
Firstly, there is a higher tax relief following the announcement that from 2017 to 2020 the amount of BTL relief individual landlords can claim back will be cut by 15 per cent.
Also, following the dividend tax credit, which introduced a new tax-free allowance of £5,000, you can potentially receive tax free dividend income from the property.
For a limited company, there is also zero income tax on the retained profit. You will still have to pay corporation tax, but this is lower, giving you better cash flow to grow a portfolio.
Lastly, if you need a cash advance, you have the option to release funds from the company using a director’s loan when acting as a limited company.
To add to this, the announcement from the Government following Brexit, that it plans to lower corporation tax to 15 per cent, may also sway residential property investors to go down the corporate route.
On the flip side, there are costs associated with being a limited company that you need to consider before deciding which is the best option for you.
The general costs of running a limited company can creep up to more than you think, so these need to be forecasted. These include filing accounts at Companies House, corporate taxes, and accountancy and auditing fees.
Furthermore, borrowing through a limited company means missing out on the Capital Gains Tax (CGT) allowance when you come to sell, and with the allowance currently at over £11,000, its an important factor to consider.