Buy-2-Let into a Limited Company
Written by
Zain Haider

We continue to get asked by landlords whether they should move their buy-2-let into a Limited Company. Below is an example of the tax consequence. We will be posting a more detailed post soon where we look at the pros and cons of moving into a limited company.

In 2016 more than 100,000 landlords bought properties within limited companies - but many are now concerned that the Government might move to make these subject to tougher taxes too. See an example below of the tax consequences of the recent and upcoming tax changes.

Example

You pay 40pc income tax. Your Buy To Let earns £20,000 a year and the interest-only mortgage costs £13,000.

Currently: Tax is due on the profit. You pay tax on £7,000, meaning £2,800 for HMRC and £4,200 for you.

From 2020: Tax is due on your full rental income of £20,000, less a tax credit equivalent to basic-rate tax on the interest.

You pay 40pc tax on £20,000 (£8,000), less the 20pc credit (20pc of £13,000 = £2,600).

HMRC gets £5,400 and you get £1,600. Your tax bill has gone up by 93pc.

Incorporating your buy to let into a company structure: You pay 20pc corporate tax on the profit. So HMRC gets £1,400, you get £5,600.

Be aware however as moving property into a limited company can also have significant tax implications, with owners potentially incurring stamp duty and capital gains tax liabilities.