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Buy-to-Let: Personal Purchase or Limited Company?

July 20, 2022 | Investments  

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When looking at Buy-To-Let purchases, most people buy investment property personally or via a limited company.

Since the Government changed the mortgage tax relief rules in 2015, buying property through a limited company has become an increasingly popular choice – but what is best for you?

HOP has teamed up with Calculated Ltd, a local Accountant and Tax Consultant specialising in Property, to put together the key considerations you need to address when making this kind of decision.

“Your decision needs to take various factors into account”, says Calculated Ltd’s Director, Chris Williams.

Factors to be taken into consideration include: the rate of personal income tax liability, the number of properties you own, your future goals and your inheritance tax plans.

For example, if you are planning to sell any of your properties in the future, you could end up having to pay double tax if you withdraw the funds from the company, assuming your personal tax-free dividend allowance and director’s loans have already been used.

Consider your strategy

The advice from Calculated Ltd is that while it may well be worth holding some properties personally, it may also make sense to keep some others within a limited company – you don’t have to follow the same route for every property in your portfolio.

What if I want to transfer to a Limited Company at a later date?

While this is possible, it requires careful consideration and tax-planning. To make the transfer, you need to sell your property to your new company, which will incur costs that – for some – can drastically reduce any potential tax saving in the medium or long term.

  • If there has been an increase in the value of the property since you bought it, then you’ll have to pay Capital Gains Tax (CGT) on the profit. How much you pay will depend on your tax band. Lower rate taxpayers pay 18%, while higher rate taxpayers will pay 28%.
  • Your company will also need to pay Stamp Duty Land Tax (SDLT) on the purchase, including the 3% second home surcharge.

Both of these taxes are calculated on the market value of the property on transfer into the company. If you are transferring a property that is currently mortgaged, you may also have a redemption penalty to pay too, if you are locked into a fixed rate.

Take Advice

At HOP, we have worked with thousands of landlords over the years, who have entrusted their investments with our award-winning property management team. Through our specialist HOP Investments arm, we help investors make the most of the Leeds rental market through property sourcing, property optimising and property development. We have been operating in the industry since 2009 and have relationships with a number of specialist partners to help you along your property journey.

When it comes to financial matters, you should always take specialist advice. Calculated Ltd is a property tax specialists based in Yorkshire. They offer a stress free approach to handling your affairs as well as fixed fee packages to help you budget effectively.

If you have any questions about property tax or the best route to take when purchasing your buy-to-let investment, then give Calculated a call on 01904 948 860 quoting ‘HOP’ to chat through your options.

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Calculated Ltd

Calculated (Formerly The Property Hub Tax) was established in 2017 and today, they continue to build an enviable reputation for providing excellent advice and first class service to business and personal clients alike. As experts in property tax, they take the time to understand your goals and develop the right long-term strategy for you.

If you have any questions about property tax, then give them a call on 01904 948 860  quoting ‘HOP’ or visit their website.

Visit the Calculated Website

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