Landlords: Limited Company or Personal Name?
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After thriving for a long time, the private rental sector has faced challenges in recent years. Through rising mortgage rates and harsher taxation, we’ve helped many clients find the right solution for their property investments.
But whether you’re just starting out as a landlord or growing your portfolio, you may still be asking yourself the question around how to set up your rental; under your own name or using a Limited Company structure? We’ll go over some of the key points to think about here.
How do I rent my property under my own name?
This is the easiest scenario to follow: you buy a property with your own name on the deeds (and mortgage if you’re using a buy-to-let product to help you with the finance). You rent it to tenants and the agreement is with you personally. The rent is paid to a personal bank account in your name and is subject to the normal levels of income taxation.What are the benefits of renting under my own name?
It’s probably the easiest way to run your rental; a relatively simple and straightforward purchase which we can help you fund if you need a mortgage. If you’re a first timer, you might not know that you need a buy-to-let mortgage when purchasing a property to rent out – you can’t use a normal residential mortgage like you have on the house you live in. They work in much the same way (you set the term, can be repayment or interest only and you can get deals where the rate is fixed or tracks the base rate). You will need to declare the additional income you make on your property (from the rent you charge) to HMRC so, as long as you’re able to complete a Self-Assessment tax return, you might not need the services of an accountant making this a cheaper route too.Are there any downsides to renting under my own name?
- Potentially higher tax If you’re already paid a salary through employment or you earn other income in a different way, you’ll need to be mindful of how much money you’re making overall when you add in the rent you receive. Take home more than the current threshold for the lower rate of 20% (£37,700 as at the time of writing), then you’ll slip into the higher rate of tax and start paying 40% on anything you earn above that level. Please note, we understand the rules around taxation but aren’t authorised to give advice so you should seek independent help on this. We have connections to lots of specialist property accountants and can recommend one if you need help.
- Personal connection Buying under your own name means your personal finances are intertwined more closely with the rental property. If you experience void periods without any tenants, you’ll need to cover the mortgage payment. Equally, you’ll be liable for running costs and the cost of repairs after a tenant moves out. If the property creates a financial problem, your personal finances, and credit history, will be directly impacted.
How do I buy a property to let using a Limited Company?
First, you’ll need to set up a company with Companies House. There’s a small charge for doing this. If you’re just planning to invest in property with your company, you should consider a “Special Purpose Vehicle” company – a specific legal entity usually established to deal with one business purpose only. You’ll need to choose a name for the company you want to rent property under. The name is important as it needs to convey some of what you do, not be misleading, and not be too similar to any other company names. As part of registering with Companies House you’ll need to decide where your business address should be and you’ll need to appoint at least one director and one shareholder. Next, you’ll need to file for Corporation Tax. This needs to be done within 3 months of your business beginning to trade. Finally, you’ll need to set up a business bank account to receive rental income and cover the outgoings associated with your property. With some time and planning, you can take this on yourself but you might feel more confident with the help of an accountant. We work with a lot of accountants that specialise in property tax and can recommend someone to help you.What are the benefits of using a Limited Company for rental property?
- A lower rate of tax is definitely the big advantage of renting under a Limited Company but this only really benefits those paying the higher rate of income tax (40%). Instead of paying income tax, your limited company will be liable for corporation tax between 19% and 25%.
- Your rental business, arranged using a limited company, is treated separately to your personal finances so if anything were to go wrong, your personal finances are less affected.
What should I consider?
- This is a more complex arrangement. The set up and management is time consuming so you’ll need to make sure you have capacity to do this
- Renting using a limited company could be more costly if you need to employ an accountant
- There are fewer mortgage products for limited companies but don’t worry, we have a lot of experience and source deals on an almost daily basis for clients in similar circumstances.
How can Mortgage Style help me as a landlord?
- Expert advice Mortgage Style are an award-winning broker based in Bristol. We’re proud of our place in the thriving local property market and maintain close relationships with lenders so we’re always armed with the latest buy-to-let mortgage knowledge.
- Industry professionals Our advisors have over 100 years’ experience between them and close to 50% of our clients are landlords. We spend a huge portion of our time researching and finding solutions for clients who let property for a living or to earn additional income.
- Real world experience 75% of our advisors are landlords themselves so they understand the main challenges and rewards on offer.
- Enhanced support We have a big admin team because we realise that service and communication are vital for our clients and is what will allow us to find you a quick, stress-free mortgage solution.