Why Renting Your Property as a Limited Company Could Be a Smart Move for Landlords
Why Renting Your Property as a Limited Company Could Be a Smart Move for Landlords
In recent years, many landlords have started exploring new ways to maximize the profitability and long-term sustainability of their rental portfolios. One increasingly popular option is owning and renting properties through a limited company rather than as an individual. This approach offers significant financial and tax benefits, as well as greater flexibility when it comes to inheritance planning.
If you’re considering this strategy, here’s everything you need to know about why it could be the right choice for you.
1. Tax Efficiency
One of the primary reasons landlords choose to rent their properties through a limited company is the potential for tax savings. Here’s how:
• Reduced Tax Rates on Rental Income:
As an individual landlord, your rental income is subject to income tax rates of up to 45% (depending on your tax bracket). However, rental profits earned through a limited company are taxed at the current corporation tax rate, which is significantly lower (currently 25%). This can result in considerable savings, especially for landlords with multiple properties.
• Mortgage Interest Relief:
In 2020, the government phased out mortgage interest tax relief for individual landlords, replacing it with a less favourable 20% tax credit. Limited companies, however, can still deduct mortgage interest as a business expense, reducing taxable profits and improving cash flow.
2. Enhanced Inheritance Planning
Another compelling reason to use a limited company structure is the flexibility it provides for inheritance tax planning.
• Avoidance of Inheritance Tax:
Properties held personally may be subject to inheritance tax (IHT) at a rate of 40% above the nil-rate band. However, by transferring ownership to a limited company, landlords can reduce IHT liability by gradually gifting shares in the company to family members.
• Appointing Family Members as Directors:
Limited companies also allow landlords to appoint their children or other family members as directors. Over time, you can resign as a director and transfer control to your children, ensuring the property portfolio remains within the family while avoiding significant tax liabilities.
3. Limited Liability Protection
When you own properties as an individual, you are personally liable for debts or legal claims arising from your rental activities. However, with a limited company, your personal assets are generally protected. This limited liability structure offers peace of mind and reduces financial risk, particularly for landlords managing multiple properties.
4. Greater Professionalism and Credibility
Operating through a limited company can also enhance your professional image. Tenants, lenders, and partners often view companies as more established and trustworthy, which can open doors to better financing options and attract quality tenants.
5. Drawbacks to Consider
While there are many advantages to renting properties through a limited company, it’s important to consider potential drawbacks:
• Higher Setup and Running Costs:
Establishing and maintaining a limited company involves administrative responsibilities, such as preparing annual accounts and filing corporation tax returns. These additional costs should be factored into your decision.
• Capital Gains Tax (CGT) on Transfers:
Transferring properties you already own into a limited company can trigger a CGT liability based on the market value of the properties. Seeking professional advice is crucial to manage this process effectively.
How We Can Help
At Bates & Co, we’re experts in helping landlords make informed decisions about how to manage and grow their property portfolios. Whether you’re considering transitioning to a limited company structure or not, our team is here to help.
We understand the unique challenges landlords face, and we’re committed to offering tailored advice to suit your individual circumstances. Once you have made your decision, we’ll work with you to ensure you maximize the benefits of renting while minimizing risks.
Why Landlords in Hailsham Are Making the Switch
More landlords in Hailsham, Eastbourne, Stonecross, Polegate, Brighton and Tunbridge Wells and across East Sussex are choosing to rent their properties through limited companies. With benefits ranging from lower taxes to enhanced inheritance planning, this approach offers a smarter way to manage rental properties in today’s market.
If you’re ready to explore how this could work for you, contact us today for expert property letting guidance.
