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Landlords warned about ‘risk’ of using limited companies for buy-to-let

Buy-to-let landlords face the risk of double taxation if they choose to put their property investments into a limited company to avoid paying higher rates of income tax, a leading tax advisor has warned.

Addressing an audience at last week’s Association of Short Term Lenders’ annual conference, Nick Cartwright, a tax partner at Smith & Williamson, said that there is a chance that buy-to-let landlords could be hit with a potential double layer of tax on part or all of their rental income, as they may be taxed both in the company and on the extraction of their money. 

He said that the “overall tax rate, if rental income is distributed, could be as much as 50% with current rates”, adding that incorporation works better with what he called a “roll-up” strategy.


He continued: “Incorporation is good if you want to build up money within the company, but not if you want to live off the income as it is earned.”

The issue appears to be that the landlord could be taxed on taking money out of the company and, where taken as a salary, could also be liable for National Insurance contributions, which would be payable both by the employer company and the director/employee.

Susan Emmett of Savills also warned of the consequences of taxation changes in the buy-to-let market saying that the government should be “careful of what they wish for”. 


She commented: “Fewer buy-to-lets means more competition for rental properties, resulting in rising rents making it yet harder for potential first-time buyers to save for a deposit.” 


She went on to say that there has “definitely been a slowdown in enquiries from investor buyers” but that some of these may now be looking in areas of lower cost housing, however she warned “this goes against what the government wants, as landlords will be competing more strongly with the first time buyers in these areas”.


“The problem is that if you are an investor there aren’t that many options out there and the property market is still the best option,” she added. 

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  • Formula OneFan

    anyone know what a roll up strategy means exactly?

  • icon

    It means running a business without intending to take profits or wages. The money then "rolls up" inside the company and can be used for further investment or just left there (like Apple etc and ther "cash piles").
    In that situation the company pays Corporation Tax but the shareholders (owners) don't pay income tax because they actually receive no profits. Very nice if you don't need the money to live but not so useful for people who actually need the work for a living.
    It's quite amazing that these property bods have only just realised that ALL small(ish) business owners are "double taxed" on their profits!

  • Formula OneFan

    I though so, but at least corporation tax is on the way down Gillian! And the company can pay for many living expenses things!

    Most who own a company have the same issues whether it's property or not.


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