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77% of buy-to-lets are now bought through a limited company, says online broker Habito

31 October 2019 3811 Views
77% of buy-to-lets are now bought through a limited company, says online broker Habito

It’s becoming more and more popular for landlords in the UK to buy properties through limited companies, rather than as individuals. In the first quarter of 2019, a staggering 77% of buy-to-let properties were bought through a limited company.

Why is that happening? Well, it’s likely down to a recent tax change that makes it cheaper for some people to buy with a company. We’ll explain more below.

But before you rush to create a company, take a moment. Going down the company route isn’t necessarily the best option for everyone. There’s loads of things to consider first: how many other properties you own, how you’d like to manage your rental income, how long you think you’ll own the property for... just to name a few.

Ready? Let’s dig a little deeper.


Go solo or set up a company? Habito broker Will explains some of the key differences.

Individual vs company: how do they compare?

If you buy your property as an individual, then your rental income gets taxed as personal income.

But there’s a tax change happening: the amount of tax relief you can claim on that income is changing. Before, you used to be able to deduct certain costs from your rental income before you pay tax on it. Like mortgage interest – a big one. But new rules being phased in from April 2020 mean you can’t do that any more. You have to pay tax on your rental income in full, and can only claim back the tax on one fifth of those costs later.

But these new rules don’t affect how companies are taxed. That’s what’s driving the increased popularity of company buy-to-let. Companies pay corporation tax, not income tax, on rental income (19%, but dropping to 17% in April 2020). They can also claim mortgage interest as a business expense, which reduces the amount that’s taxed.

That might seem like a much better deal, but it’s not that simple. The rental income your company collects will belong to the company (not you). If you want to withdraw that money, either as a salary or as dividends, you’ll have to pay income tax or dividend tax. That’s on top of the corporation tax the company has to pay each year.

Aside from tax, setting up a company to purchase a rental property is going to mean at least a bit more paperwork and admin, including registering with Companies House, keeping the right accounting records, and submitting your corporation tax returns every year.

Whether you buy as an individual landlord or a company really depends – both on your circumstances, and on what you’re looking to get out of a buy-to-let.

Always talk to your accountant, financial adviser or solicitor to help you make the best choice for you. Once you’ve got professional advice and know what you’re after, Habito can help you get the right mortgage. Chat to one of their expert brokers today.

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