Corporation tax for landlords with limited companies

When you own multiple rental properties and decide to incorporate, the way you handle tax has to change. As your property business grows, we’ll be there to help.

Simon Thandi, UK Landlord Tax

Hi, I’m Simon.

I’m one of the Directors of UK Landlord Tax and also someone who believes in the power of property. It’s always worth thinking strategically about the ownership structure of your landlord business, especially when it starts to become a serious job rather than a sideline. Setting up a limited company is a big step but can be a very smart move. Talk to us today to find out why.

Your property business should be rewarding

We make running a limited company easy by…

Doing your corporation tax return

When your property business becomes a limited company it acquires additional statutory responsibilities, such as an annual company tax return to HMRC and filing of accounts with Companies House. We’ll do all that for you, no bother.

Getting it right

Because we complete corporation tax returns day in, day out, we know all the complications and opportunities. Should HMRC have queries, we’ll take care of those on your behalf, talking the taxman’s language.

Claiming important reliefs

The key to keeping your company’s tax bill under control is knowing which allowances and reliefs you’re entitled to claim and claiming them.

Download our FREE UK Property Tax Guide.

A simple guide to property rental income tax and property capital gains tax for UK Landlords.

Current tax rules

Dealing with HMRC

How our tax system works outside of PAYE

Frequently asked questions

I’m a higher rate taxpayer, will owning property through a limited company help me save tax?

If you are a higher rate taxpayer and own property in your personal name you will pay income tax at 40% (or higher) on your rental profits. By holding property in a limited company the same profits are taxed at 19%. The tax saved can be kept in the company and used to pay off any mortgages or fund a deposit for additional property purchases.

In addition as a higher rate taxpayer you no longer receive full tax relief on any mortgage interest on properties held in your personal name. The tax relief on mortgage interest is restricted to 20%. A company still gets full tax relief.

At the moment (2020-21) you can also withdraw up to £2000 in tax free dividends from a limited company.

As a higher rate taxpayer (provided that you total income is less than £150,000) you could also receive up to £500 of interest tax free from your company  for loans/deposits you have given the company to purchase property.

Can I transfer my properties to a limited company?

Yes, but you need to be very careful before doing so. A transfer is deemed to be the same as a sale at market value by HMRC and you should therefore consider the following:

What are the additional costs of a company mortgage to pay off any outstanding loan. As well as finance charges loans to limited companies can be more expensive.

Will there be stamp duty payable? If the property is worth more than £40k the higher rate surcharge of 3% applies. Standard rate of SDLT will also apply.

Will there be a capital gains tax liability?

The combination of the three factors could be very expensive and we advise that you should not undertake this without getting professional advice.

Whilst a transfer might be expensive purchasing a property from the outset is likely to be more beneficial.

How do I take income from a limited company?

As a shareholder/director of your property company you can extract funds as a follows:

Pay out dividends from post tax profits. The first £2000 is tax free if you have no other dividend income

Pay yourself a salary. If you have no other income you may want to draw a salary. However, the salary would need to justified to be allowable for corporation tax purposes. If a letting agent was managing the properties for you then it would probably be difficult to justify the payment of a salary.

Payback a loan that you made to the company. This would be tax free.

Receive interest on loans/money owed to you by the company. £1000 tax free for lower rate taxpayers and £500 for higher rate taxpayers (income up to £150,000).

Can a limited company get a mortgage and how does the cost compare?

Yes. Ever since April 2015 mortgages for limited companies and the number of lenders have steadily increased and continues to do so. However, the rates of interest charged on a mortgage to a limited company is still comparatively higher than that charged to borrowings by an individual. Although, some lenders now charge the same rate regardless.

What is a directors loan account?

A directors loan account (DLA) is where you keep track of all the money you either borrow from your company, or lend to it. If the company is borrowing more money from its director(s) than it is lending to it, then the account is in credit. It is not advisable to borrow money from your company as this can lead to various tax charges.

Can I charge my company anything for deposits I paid towards buying the property?

Yes. If you have loaned the company money for a deposit or other purpose you are entitled to charge the company a commercial rate of interest for the loan. Higher rate taxpayers can receive £500 and lower rate taxpayers £1000 tax free each year.

Can a limited company help with IHT?

A limited company does offer advantages when it comes to IHT. By setting up a Family Investment Company structure you can mitigate future IHT. Briefly, a company is set up with 2 class of shares. A and B shares. You own the A shares which have the right to dividends and voting rights.

The B Shares have entitlement to all future growth. Thus giving away value whilst still retaining controls through directorship.

 

Any growth on the investments will be largely outside of individuals’ estate for IHT purposes.

The implementation of this type of tax structure can be complex and you should seek advice from a professional adviser with the adequate level of knowledge and expertise in these matters. For further information please see the following …. Or get in touch to discuss your situation.

What is an SPV?

SPV – Special Purpose Vehicle

An SPV is a generic name for ANY entity that you choose for a particular purpose. An SPV can be a limited company, an LLP or partnership.

Limited companies can be an SPV and many lenders require you to set up a limited company SPV when purchasing property through a company.

What tax rate do limited companies pay?

Limited companies pay corporation tax at 19% on profits.

Can I get tax free income from my company?

Yes. In the tax year 2020-21 a shareholder in a limited company can normally receive up to £2000 of dividends tax free.

Fees for limited companies

If you’re a landlord operating your property business through a limited company, our fees will vary depending on the size of your portfolio and complexity of your financial situation. But don’t worry – we’re always focused on offering great value, accuracy and efficiency.

Get in touch for a quote

If you drop us a line, by email or phone, and tell us a bit about your situation, we’ll talk you through what we can do for you and how much it might cost. It might be as simple as a straightforward corporation tax return to account for the additional income you derive from renting property or maybe you need comprehensive tax advice with your role as a landlord being only part of the picture. Either way, our expert team loves to talk property tax and share their wisdom.

Let‘s talk about property tax today

When it comes to fixed-fee tax returns for UK landlords, nobody does it better.

Our limited company tax services are for you if you…

Have a growing portfolio of rental properties

If you’ve gone from one house or flat to many and are want to explore the possible tax advantages of incorporation, now’s the time to get advice from our team of experts. Don’t rush into anything – make an informed decision with all the facts at hand.

Are pivoting to property from another field

If property started out as one part of what your company does but has become your primary business, it’s time to get an accountant who specialises in property tax and knows the challenges facing landlords today.

Want support with core finance functions

Until your limited company is big enough to warrant it’s own finance team, let us handle accounting, reporting and returns to HMRC – an reduce your tax bill while we’re at it.

a man in glasses smiling

What a refreshing experience

“We are overseas and have a property in the UK. We had a stressful time finding a suitable firm to look after our affairs... What a refreshing experience to find a company that was so helpful, so considerate, and took time to listen to our concerns. Nothing was too much trouble for them. They have just completed my tax return and although I had issues trying to find my way around portals and so on, they were magnificent in guiding me through what I considered to be a maze."

A Jones, July 2019

Via FreeIndex, edited for clarity

Our experts are waiting to speak to you

Get the advice and support you need

Contact our landlord tax experts

Jennie, UKLandlordTax

Talk to one of the team today

Call us now on 01902 711 370
or 0800 907 8633