#AskAdam – Question 4 – LTD vs Single BTL

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Q.

Hi Adam, I’m interested in beginning to invest my money into property. I’ve saved up £30k for the deposit and fees for my first buy to let which I intend to buy in the North of England. I currently earn £50k a year. I keep reading about buying a buy to let property in a limited company rather then just in my own name but the whole thing kinda freaks me out and I’m not sure it’s right for me. What are the benefits of buying a buy to let in a limited company and would it benefit me in anyway? Thanks B

A.

Hi B, great question! There’s pros and cons to both, and really depends on your long term wants and circumstances.

Over the last few years the benefits of buying a BTL property in your own name have decreased.  Now, increasingly more landlords are buying in a LTD company name.

Two main points to consider when deciding are:

  1. The tax benefits.
  2. When do you want the income?
Here is an example for both cases with an annual income of £50,000.  If your income were to change then so too would the calculations:

This is for buying a property at £300,000 with a mortgage of £225,000.

LTD Company

Personal Name

As you can see, buying in a LTD company retains a larger portion of the profits. You can then reinvest that profit into another BTL property should you wish. 

Additionally, if you sold the property and it was in your own name there could be capital gains tax (CGT) to pay. Currently it is 18% for basic rate tax payers and 28% for higher and additional rate tax payers.  You’ll fall under the 28% based on your income.  That could be a large amount of the growth gone in tax.  

In a limited company there isn’t any CGT to pay, only corporation tax (currently 19%) which is taxed on all profits made by the company. 

Which way is best from a selling on point of view will depend on the amount the property has increased by.  

A problem does arise when you want an income from the company.  Any money you take out could be taxable, again, at your personal income tax rate.  What you could do is leave the profit in the company and withdraw when your income falls or you retire.  

Whatever a persons tax rate, they would need to be careful that any income doesn’t push them into the next bracket.  For example, if I were earning 40K from my job and then had an income of 15K from my BTL, I would fall into the higher rate tax bracket. 

Based on your income go for a LTD company if you:

  • Don’t need the income right now.
  • Do need the income but may not need it in the near future – You can always stop taking an income from the company.  You can’t if it’s in your own name.
  • Want to reinvest the profits into another BTL property.
  • Want to sell the property and expect a large gain – Corporation tax is 19%, CGT would be 28%.

Go for personal name if you:

  • May lose your job/retire or your income is due to fall significantly. 
  • Need the income immediately and indefinitely.  If you take income from the company you’ll pay corporation tax and 40% tax on the income you take out. 
  • Don’t want the hassle of setting up a LTD company. 
  • Want a cheaper mortgage interest rate – Usually rates are cheaper in your own name than for a LTD company. 
  • Want to sell the property but expect a small gain and you don’t have any other gains elsewhere. 

I could go into this in a lot more detail so I think I’ll do a full post on it at some point, but hopefully this helps answer your question. I would suggest you speak with an accountant as well.  They’ll be able to help you with the items you could offset to bring down the tax bill in both scenarios.

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