How to Set up a Company for Buy-to-Let
8th September, 2024
Investing in buy-to-let property has become more and more popular, and many property buyers are now choosing to set up limited companies to manage their portfolios. Taking this approach offers several benefits such as tax advantages, reduced personal liability, and improved flexibility in making property investments.
In this blog, we will explore the process of setting up a buy-to-let company, discovering the key steps and considerations and legal requirements.
What is a Buy-to-let Property Company?
A buy-to-let company is a limited company that rents out property that it owns to earn rental income for its investors. The property they own is purchased through support from financial assistance such as mortgages. The money earned from renting out the property is then used to pay off any money that has been borrowed to own the property.
Many people find buy-to-let investing appealing, but setting up a buy-to-let company requires detailed consideration and requires necessary financial support.
The Benefits of Setting up a Buy-to-let Company?
The process of setting up a buy-to-let company can be a complex process that requires expert guidance. However, there are many benefits of using a company structure for buy-to-let investments. Here are some of the key advantages:
Tax Efficiency: A key benefit of a limited company is paying corporation tax on profits which is usually lower than the personal income tax rate for higher earners
Limited Liability: When setting up a buy-to-let company, your liability is protected meaning that if the company undergoes financial trouble your assets are protected.
Estate Planning: Holding properties in a company makes it easier to plan for inheritance tax, as shares in the company can be transferred to family members more flexibly than directly owned property.
Reinvesting Profits: As a limited company, you can retain profits within the company and reinvest them in additional properties without being taxed at personal rates until you choose to withdraw funds.
Key Considerations When Setting up a Buy-to-let Company
Even though setting up a company for buy-to-let has its many benefits, it’s not always the best option for all investors. If you are unsure of whether this may be the best approach for your business, here are some important factors to consider:
Higher Mortgage Rates
Most buy-to-let mortgages for companies come with much higher rates compared to a personal mortgage. Also, as a limited company, it can sometimes be difficult to gain access to loans which may limit your options.
However, with the right guidance and financial support from Haggards Crowther, this won’t be an issue. We will guide you through the process and provide you with the support you need.
Legal Costs
Operating a limited company involves additional legal and administrative costs, such as annual accounts, corporation tax returns, and potential legal fees. These added expenses need to be factored into your business plan.
Tax on Dividend Withdrawals
Although you can retain profits within the company at lower tax rates, withdrawing funds as dividends can attract personal tax. You must carefully plan how and when to take money from the business to minimise your overall tax burden.
Transferring Properties to a Company
If you own properties personally and want to transfer them to your new company, you will likely face capital gains tax and stamp duty charges. This could negate some of the tax benefits of the company structure, so it’s important to seek advice before making such transfers.
Setting up a Buy-to-let Company
Once you have decided that setting up a limited company is the best approach for you, exploring the best steps to take is highly important. Here are some key steps to follow:
Deciding on a Company Name Structure
The initial step for setting up a buy-to-let company is to decide on your company’s name and structure. Most landlords opt for a private limited company (Ltd) structure, which is straightforward and offers the benefits of limited liability.
The name should be unique, and you can check the availability of your desired company name through the Companies House website in the UK or the relevant registration body in your country.
Register Your Company
Once you have decided on a name and structure, the next step to take is registering your company with the Companies House. Registering your company can usually be done online and you will be required to provide specific information such as:
- Company name
- Identify the company’s directors and shareholders
- Providing a registered office address
When the correct information has been provided and the registration fee has been paid, you will receive a Certificate of Incorporation, confirming that your company is officially set up.
Open a Business Bank Account
After setting up your company, one of the first important steps is opening a business bank account. This keeps your rental income and expenses separate from your personal money, making everything easier to manage. It also helps you stay organised, track your finances clearly, and stick to the rules that apply to running a company.
Haggard’s Crowther is Here to Help!
Setting up a limited company for buy-to-let can be an effective way to optimise tax efficiency, limit personal liability, and build a property portfolio in a structured way. However, the process requires careful planning and consideration of the financial implications.
Following the steps outlined in this blog and seeking professional advice from accountants and mortgage brokers, you can set up your buy-to-let company with confidence and ensure long-term success in property investment.
At Haggards Crowther, we are a family-owned firm who have years of experience working with various clients. Our passionate team is dedicated to providing excellent tax and accountancy services that help you set up your buy-to-let company.
The team is driven by key values, always putting our clients interests at the heart of every decision we make. If you are unsure on whether setting up a buy-to-let company is the best option for you, look no further than Haggards Crowther for the best financial support and guidance to help you along the process.
