With the recent tax changes in the mortgage market, it can be beneficial for Buy to Let investors to finance their Buy to Let properties by using a limited company.
There is no "one size fits all" response to this. Using a limited company to manage your buy to let properties can have advantages but it does just depend on your future intentions as well as the structure of the way income is generated as to whether this is the best option for you.
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The tax on the rental income will differ slightly when purchasing an investment property depending on whether you buy it in a private or limited company name.
If purchased in a private name, your income from this will be taxed as income tax – just like your other earned income. When purchasing in a Limited Company name, however, instead of Income Tax, you would pay Corporation Tax which can significantly lower than the rate of Income Tax, depending on your tax band.
There are also ways to maximise tax efficiency rather than taking the rental profits as salary or dividends.
If you are taking out a property in a Ltd Company name, Buy to Let mortgage providers will normally require the company to be an SPV (Special Purpose Vehicle).
In the mortgage world, this basically means the company’s sole purpose is to hold property and not conduct any other sort of business. Lenders often prefer SPVs owing to the fact they are much less complex and therefore much quicker to understand and underwrite.
You can still obtain a Ltd Company mortgage if your company trades in something other than property but your options on lenders available will be limited.
By Jay Thain | 03 October 2020
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