Understanding LTD Company Income Requirements for Buy to Let

Estimated reading time 6 minutes

If you’re a landlord in London looking to maximize your profits and streamline your property investments, you’ve likely considered various strategies, including selling house fast in London, engaging with cash house buyers, selling a buy-to-let property and buying properties in a limited company.  This approach of investing in property as a limited company offers several advantages, but it also comes with its own set of considerations and challenges.

This blog will walk you through the advantages and highlight the challenges of using a limited company for buy to let, shedding light on buy to let requirements, buy to let mortgage income requirements, and other key aspects you should be aware of.

Additionally, we’ll explore how these strategies align with the goal of selling a property portfolio and how Gaffsy can provide you with a free cash offer for your properties.

The Pros of Investing in Property as a Limited Company

1. Lower Tax Rates

Perhaps the most compelling reason for London landlords to consider the limited company route is the substantial reduction in tax liabilities. This advantage is particularly significant for higher-rate taxpayers. Instead of paying income tax rates that can soar as high as 45%, landlords operating within a limited company structure are subject to corporation tax, which currently ranges between 19% and 25%. This lower tax burden can translate into substantial savings, especially when you’re considering selling a property portfolio.

Note previously, landlords could claim tax relief of up to 45%, but now they are limited to a basic tax rate of 20%, resulting in a significantly reduced tax benefit, particularly relevant when considering selling a buy-to-let property.

2. Income through Dividends

Another appealing aspect of buy-to-let as a limited company is the ability to receive income in the form of dividends. Dividends are taxed differently from PAYE income. While the tax-free dividend allowance was previously £2,000, it has now been reduced to £1,000 and is expected to decrease further to £500 in 2024. Any dividends exceeding these amounts become taxable.

Note dividends paid to shareholders are subject to corporation tax at the company level before they are distributed, so there is a double taxation. This double taxation can be complex and it is therefore advisable to get advice from an accountant.

3. Limited Liability

Limited liability is another significant advantage of operating as a limited company. When you run an investment property as a limited company, it legally separates your personal finances from the business. So, you are not personally liable for any losses incurred by the company and it also offers a layer of protection for your personal assets.

4. Reduced Inheritance Tax

Set up correctly, a limited company can reduce your Inheritance Tax particularly when you’re considering selling a property portfolio. If it is set up correctly, you can retain full control during your lifetime, have full access to income and implement a shareholder agreement to protect your property wealth for your children. Given the complexities this should be done with the guidance of an expert to ensure that you meet all your legal requirements.

The Cons of Buy to Let as a Limited Company

While the tax benefits and limited liability offered by limited companies are enticing, there are some notable drawbacks to consider:

1. Capital Gains Tax, LBTT, and ADS

Transferring existing buy-to-let properties from personal ownership into a limited company may trigger various taxes and costs, which can impact your strategy for selling house fast in London. These can include Capital Gains Tax (CGT), Land and Buildings Transaction Tax (LBTT), and Additional Dwelling Supplement (ADS).

It’s essential to plan and structure such transfers carefully to minimize tax liabilities, especially if you’re contemplating selling a buy-to-let property or considering a free cash offer.

2. Higher Mortgage Fees

Limited companies may face higher interest rates and additional fees for buy-to-let mortgages compared to individual landlords. Additionally, transferring property ownership from personal to limited company ownership can result in early repayment fees and legal expenses, factors to consider when selling a property portfolio.

3. Increased Administrative Burden

Operating as a limited company requires adhering to additional administrative requirements that do not apply to sole traders. This includes setting up the company through Companies House, preparing detailed accounts, and filing tax calculations with HMRC. These tasks may incur additional costs for accounting, legal, and auditing services, which should be accounted for when planning to sell house fast in London.

Property Trader vs. Property Investor

If you engage in frequent property transactions with the intention of renovating, renting, and selling, you are likely considered a property trader. In this case, establishing a property company may be more advantageous than paying capital gains tax on each property transaction.

Conversely, if you aim to hold and generate rental income from properties for the long term, it’s essential to weigh all the pros and cons mentioned above and consult with experts to make informed decisions when selling a property portfolio.

Property Transfers to Limited Companies

Transferring property to a limited company should be based on market value and requires a professional valuation, a consideration when selling house fast in London. Ensure that the property is registered under the company’s name rather than your personal one. Lenders may require permission and even a personal guarantee for such transfers. Additionally, be prepared for Stamp Duty Land Tax (SDLT), legal costs, and potential Capital Gains Tax implications.

Need to Sell Flat Fast?

At Gaffsy, whether you selling your property portfolio through a limited company or in your personal name we’re here to make the process as seamless as possible. There are no limitations when you choose to sell your portfolio to Gaffsy, one buy-to-let or multiple properties we are here to help. We take pride in being the go-to cash house buyers who are ready to purchase any portfolio, regardless of location, size, condition, or tenancy status of each property.

We Buy Any Property, Any Condition

Are your properties currently tenanted? Do some of them need improvement or renovation? Do you need to sell a property that is squatter-occupied? Or maybe you have an HMO for sale. Even if your properties are facing house repossession or have failed to sell on the open market, we assure you that we buy any house, in any condition. You should never doubt that your buy-to-let property wouldn’t be of interest to us

A Seamless Selling Experience

Whether you want to sell a portion of your portfolio or every property within it through your limited company, Gaffsy can guarantee you a sale. We use our own cash funds, ensuring a swift and hassle-free process that meets your unique requirements. Our commitment to transparency means that we keep you informed at every step, no matter how small the update.

Get the Best Cash Offer

Gaffsy takes pride in providing the most realistic cash offer for your property. With the ability to complete transactions in as little as 7 days, you can sell your portfolio or sell your flat fast without worrying about fees or commissions. Our no-obligation free cash offer is just a phone call away. Contact us today to get started on your path to a hassle-free sale through your limited company.

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