We work with landlords who have incorporated their property businesses, handling corporation tax returns and offering tax planning strategic advice.
Hi, I’m Simon.
I’m one of the Directors of UK Landlord Tax and as it happens, a bit keen on property myself. Incorporating your property business can make a lot of sense but it’s not something to rush into. If you’ve already set up a limited company, are you taking advantage of all the tax breaks on offer? Talk to one of our team to explore the options.
How to use a limited company to super charge your property business
What if you could have…
The lowest rate of tax
Limited companies pay corporation tax at just 19% on profits up to £50,000. From 1st April 2023 the first £50,000 will be taxed at 19%, the next £200,000 will be taxed at 26.5% and the remainder will be taxed at 25% (provided that you only control one company) compared with personal rates of tax starting at 20%, then 40% and a top rate of 45%. By not withdrawing the profits a limited company offers more flexibility. After paying the corporation tax, the retained profits could be used to pay down any loans or used for deposits on further properties.
Reduce exposure to Inheritance tax and protect your family wealth
A limited company offers more planning opportunities for inheritance tax planning. How? By setting up a Family Investment Company (FIC) structure we can ensure that you protect your property wealth for the next generation and your bloodline, yet keep full control and access to income for the rest of your lives. See how we do this here.
Claim full mortgage interest costs
Full tax relief is given for mortgage interest. This is now one of the main reasons why higher rate taxpayers are choosing to use a limited company.
Extract tax free income to pay for lifestyle, child care and educational costs
With the right implementation we can help a family with one child extract up to £18500 in tax free income per year. By using the tax free dividend allowance of £2000 each plus your child’s own personal tax allowance it pays to speak to a specialist property tax adviser like ourselves.
Personal service to help you navigate whats right for you
We’re not big but we’re not small either. So you will get a personal dedicated property tax accountant to help you on your property owning journey. When it comes to fees, let’s just say we know we’re one of the most competitive advisers out there. So if you’ve gone and spoken to someone else get in touch and compare what we have to offer before you do anything else.
Your corporation tax return done
Limited companies have to make corporation tax returns to HMRC and file accounts with Companies House. We can do that for you, taking all the hassle out of the process. We’ll assist you in getting it right and filed on time, so you can focus on the success and growth of your business.
HMRC handled on your behalf
From follow-up questions to full-on investigations, we’ll be there to manage conversations with the tax authority, talking their language to keep things running as smoothly as possible.
Maximum income, minimum tax
With strategic business tax planning built on years of experience with property tax, we’ll find and claim every tax relief your property business can claim. Even if the calculations are complex and the paperwork is tricky. The less tax you pay, the more you’ll have to reinvest in growing your portfolio.
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 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. From 1st April 2023, the Government has proposed that the first £50,000 will be taxed at 19%, the next £200,000 will be taxed at 26.5% and the remaining profits will be taxed at 25%. Where companies are under common control the bands are shared equally between each of the associated companies.
Can I get tax free income from my company?
Yes. In the current tax year a shareholder in a limited company can normally receive up to £2000 of dividends tax free.
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Our limited company tax service is for you if…
You’re considering incorporating
Setting up a limited company might work for you or it might not. Explore your options with one of the UK Landlord Team and get support, advice and challenge to help you reach the right decision and keep your tax bill under control.
You’ve set up a property firm
People often decide to incorporate once they’ve got a few rental properties and want a more efficient way to manage the income. We’ll help with everything from statutory obligations such as VAT returns to advice on salary vs. dividends.
You’re paying too much tax
With intelligent analysis and sensible tax planning, it’s likely we can help reduce your corporation tax bill straightaway. From unclaimed tax reliefs to overlooked allowances, we’ll find every opportunity to save you money.
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