Private Landlord Vs Limited Company Landlord

The controversial “landlord loophole”, which allows limited companies to sidestep the recent stamp duty and tax relief changes, has prompted individual investors to sell their properties to themselves as newly created limited companies in attempt to save themselves money long-term by tax efficiency.

Private Landlord vs Limited Company Landlord Infographic

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The Landlord Loophole

As of April 2017, 77% of buy-to-let purchase applications are now made by companies. Up from 69% in only Q4 2016. Investments made by limited companies have more than trebled since before the 2015 budget, when the changes were announced.

1 in 5 rental properties are now owned by a company.

However, the number of buy-to-let loans are falling from month to month – down 26% when compared to the figures from February 2016.

New limited companies face new challenges when looking for buy-to-let mortgages, as individual landlords have far more choice in lenders. Over the past few months, buy-to-let mortgage offers have dropped from the market at the most alarming rate since the banking crisis of 2009.

Previously, private landlords were entitled to claim tax relief, only paying tax on the difference between their mortgage interest and rental income generated from the buy-to-let property. As of April 2017, the entire rental income is taxable minus tax credit calculated at a flat rate of 20% of their mortgage interest payments (regardless of tax bracket). The higher your mortgage interest rate, the more you will be affected by these changes.

Limited companies are exempt, and instead pay the 20% corporation tax rather than the income tax on profits – which be up to 45% for the highest rate taxpayers.

Should buy-to-let landlords set up limited companies?

The fee to register a limited company via Companies House is low and relatively easy – it can be done online. But from there, it can get complicated and it still has many private landlords scratching their heads in confusion as to whether becoming a limited company landlord is worth it. As a company, there are a lot more administration costs due to the extra paperwork to take care of that private landlords may not be prepared for. Many private landlords enjoy the more “hands off” approach of passive income, which is a bit more difficult as a company. As a private landlord, you may also benefit from keeping your finances private between just yourself and HMRC (and possibly an accountant).

Limited company landlords will have to disclose all financial business information such as their profits and margins, complete annual self assessment tax returns, and then there is the cost of selling and purchasing the property which will be liable to a Capital Gains Tax, Stamp Duty Land Tax, as well as other legal costs. This in itself can negate any potential tax savings from moving the property into ownership of a limited company.

However, there are other benefits to setting up a limited company for your buy-to-let investments. Gifting a property to a child is tax-free, as Capital Gains Tax won’t be incurred due to the property being held inside a company. You can simply subscribe your children shares in the company or transfer ownership of the company to them easily via Companies House.

As limited companies have limited liability, in the event that a tenant becomes injured as a result of a fault in your property, they would be suing the company and not you as an individual. Company directors are not personally responsible for any business debts. This can protect your personal finances from ruin, should the tenant successfully sue. As a private landlord, you may be forced to pay out from your own pocket which can be financially devastating and cause you to lose everything.

Buy-to-let landlords with a small number of properties can also form a joint company with other small landlords to jointly exceed the number of 15 properties needed to be exempt from the 3% Stamp Duty surcharge. Limited companies are able to grow their buy-to-let portfolios far more quickly than individual landlords as the profit that would otherwise be income taxed can be reinvested in additional property.

The best advice is to always consult a professional adviser or accountant to work out the advantages and disadvantages specific to your case.

2 Responses to Private Landlord vs Limited Company Landlord
  1. I have a wholly owned private company principally involved in letting a property for holidays. The insurance for the property is in my name, should it be in the company’s name??

    • The property owner, whether that is yourself as a private individual or your private company, should be the policyholder of the associated insurance policy.


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